If the income elasticity of food is found to be 023 then...

If the income elasticity of food is found to be 0.23 then food is a Question 1Answer a. an elastic normal good. b. an inferior good. c. an inelastic normal good. d. a substitute good.

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00:01 The fact that the expenditure on food as a percentage of income has declined indicates food is what? so we have five options here.

00:08 We're going to go through them.

00:10 But the first point is that the question says that as income increases, expenditure on food, as a percentage decreases.

00:21 So the expenditure percentage has gone down.

00:24 Now, that does not mean that the expenditure on food as an absolute number has gone down.

00:29 That could still have increased.

00:32 Not as fast as income has increased.

00:36 So the absolute expenditure on food could have gone up.

00:45 Now for that, if we look at some of these, we have option a.

00:51 Food is an inferior good.

00:53 So an inferior good is one where as income increases, demand decreases, because there are better goods out there you'd rather spend your money on if you have it.

01:01 This is not going to be the case here because absolute expenditure could have gone up.

01:06 Our food is a necessity.

01:09 Most likely people haven't stopped eating it because their income went up.

01:13 They're probably still buying food.

01:15 Food is not an inferior good.

01:18 Is it a luxury good? so a luxury good is one where the income elasticity of demand, so that's what this whole question is really about, is greater than one...

Question

If the income elasticity of food is found to be 0.23 then food is a Question 1Answer a. an elastic normal good. b. an inferior good. c. an inelastic normal good. d. a substitute good.

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