In case of low-level commodities, income effect is _____.

Zero

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Negative

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Infinite

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Positive

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Solution

The correct option is B Negative
An income effect is positive in case of normal goods. There is direct relationship between income and quantity demanded. Income effect is negative in case of inferior goods (including Giffen goods) where we find inverse relationship between income and quantity demanded.

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Similar questions

Explain the effect of an increase in the income of buyers of a normal commodity on its equilibrium price.

Explain, with the help of diagrams, the effect of the following changes on the demand of a commodity:

(i) An unfavourable change in taste of the buyer for the commodity.

(ii) A fall in the income of its buyer, if the commodity is inferior.

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