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In: Economics

Suppose the income elasticity of a good is negative. Is the good a normal good? Explain....

Suppose the income elasticity of a good is negative. Is the good a normal good? Explain.

Suppose the cross elasticity of demand for two goods is negative. What does that indicate about the goods?

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Expert Solution

Suppose the income elasticity of a good is negative. Is the good a normal good? Explain.

No,

the good is an inferior good,

as the increase in income decreases quantity is shown by the negative income elasticity of demand, and the good is inferior because a consumer consumes low-quality goods when income is less and switches to high quality when income increases, so the quality for low-quality good decreases which are called a negative income effect on demand and that is measured by income elasticity.

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Suppose the cross elasticity of demand for two goods is negative. What does that indicate about the goods?

The goods are complements.

The negative cross price elasticity of demand means an increase in the price of one good decreases the quantity of other good. It is possible when both goods are consumed together, and the complement goods mean the goods which are consumed together.

Rahul Sunny answered 2 years ago
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