Question

What will be the income elasticity of demand in case of inferior goods?

Answer 1

Negative Income Elasticity of Demand: Income elasticity of demand for a commodity is said to be negative when an increase in the income of the consumers leads to a fall in the amount purchased of a commodity, and vice versa. In the case of inferior commodities, an increase in income leads to a fall in the quantity demanded of the commodity, i.e., less is demanded at higher incomes and more is bought at lower incomes. Income elasticity of demand in such cases is negative. For example, income elasticity of inferior (coarse) food grains like maize and bajra is negative. When income increases, consumers will switch over from inferior foodgrains to superior foodgrains like rice and wheat, leading to a fall in the demand for inferior foodgrains.