Question

Q. Which of the following statements is/are correct about income elasticity of demand (IED)?

Select the correct answer from the code given below:

• A. 1 only
• B. 2, 3 only
• C. 3 only
• D. 1, 2, 3

Answer 1

The correct option is B 2, 3 only

Explanation:

• Positive IED: It refers to a situation when the demand for a product increases with an increase in consumer’s income and decreases with a decrease in consumer’s income. The income elasticity of demand is positive for normal goods.
• Negative IED: It refers to a kind of income elasticity of demand in which the demand for a product decreases with an increase in consumer’s income. The income elasticity of demand is negative for inferior goods and Giffen goods.
• IED between 0 and 1: It refers to the income elasticity of demand whose numerical value is between 0 and 1. This is because there is very less effect of an increase in consumer’s income on the demand for products. The income elasticity of demand is between 0 and 1 in the case of essential goods.