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JAMB Economics 1987 Question 23

Question 23

Theory of Demand

If a good is an inferior good, then

  1. A.it is also necessarily a Giffen good
  2. B.the quantity of the good demanded varies inversely with its price
  3. C.its income elasticity of demand is negative
  4. D.the poor buy the good only out of habit.
Show the answer and explanation

Answer: C (its income elasticity of demand is negative)

Explanation

An inferior good is one whose demand falls as income rises, so its income elasticity is negative. Not every inferior good is a Giffen good.