Question

Question 2.If the income elasticity of demand for no-name brands of a can of beans (that is, the store’s own brand) is negative. What does this tell us about the consumers' opinions about the store’s brand of a can of beans?

Answer 1

Income elasticity of demand for no-name brands of a can of beans is negative. Negative income elasticity means demand for commodity falls as income of the consumer rises. So here income elasticity of stores brand of can of beans is negative. Therefore the can of beans is a inferior good. Income elasticity of inferior good is negative. People consume inferior good because, their income is lower. If their income rises, they will reduce the consumption of inferior good and increase the consumption of superior good Can of beans is a inferior good. Its income elasticity of demand is negative. As income rises, consumer decided to purchase less amount of can of beans. So, demand for can of beans will decreases due to rise in income. But at the same time they purchase higher quantity of superior goods that is substitute of can of beans as income rises But if consumer income falls, they purchase more amount of can of beans, because their demand for inferior good increases. Purchasing of superior good declines as income falls