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'Inferior products have a negative Income Elasticity of Demand (YED)' - Leaving Cert Economics - Question 5 - 2012

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'Inferior products have a negative Income Elasticity of Demand (YED)'. (a) Explain this statement. Explanation: As a consumer's income decreases, they will buy mor... show full transcript

Worked Solution & Example Answer:'Inferior products have a negative Income Elasticity of Demand (YED)' - Leaving Cert Economics - Question 5 - 2012

Step 1

Explain this statement.

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Answer

The concept of inferior goods relates to the income elasticity of demand, which measures how the quantity demanded of a good changes in response to a change in consumer income.

An inferior product is characterized by a negative income elasticity of demand, meaning that as consumer income falls, the demand for this good increases. This occurs because consumers tend to switch to cheaper alternatives when their income declines. For example, during economic downturns, people may opt for lower-priced goods instead of more expensive, higher-quality options. Consequently, a rise in demand for inferior goods highlights a shift in consumer purchasing behavior as they adapt to changes in their financial circumstances.

Step 2

State one example of an inferior product, giving a reason for your answer.

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Example: Instant noodles.

Reason: As incomes decline, more families turn to instant noodles because they are an economical and convenient meal option. This shift in preference occurs as consumers seek affordable alternatives to more expensive food items.

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