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Which of the following best describes the concept of income elasticity of demand in relation to the difference in weekly earnings between a college graduate and someone with some college education?
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4. Elasticity
Income Elasticity of Demand
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If product y is an inferior good, a decrease in consumer incomes will:
A
make product y a normal good
B
increase the quantity demanded of product y
C
leave the quantity demanded of product y unchanged
D
decrease the quantity demanded of product y
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Understand the definition of an inferior good: an inferior good is one for which demand increases when consumer income decreases, and demand decreases when consumer income increases.
Recall the relationship between income changes and demand for inferior goods: a decrease in consumer income leads to an increase in the quantity demanded of an inferior good.
Analyze the options given: since product y is an inferior good, a decrease in income will not make it a normal good, nor will it leave the quantity demanded unchanged or decrease it.
Conclude that the correct effect of a decrease in consumer incomes on product y (an inferior good) is an increase in the quantity demanded.
Summarize that the key concept is the inverse relationship between income and demand for inferior goods, which explains why quantity demanded rises when income falls.
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