Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 5 - Part II - Elasticity and its Application - Questions for Review: 6

Answer

A good with an income elasticity less than 0 is an inferior good.

Work Step by Step

Recall that an inferior good is a good for which the demand increases as income decreases, and vice versa. Therefore, income elasticity of a good is measured as the percentage change in quantity demanded divided by the percentage change in income. If the good is inferior, an increase in income will result in a decrease in quantity demanded, so the income elasticity will be negative. In other words, since income and quantity demanded move in opposite directions for inferior goods, inferior goods will always have a negative income elasticity.
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