Question

Assume that a 3% increase in income across the economy produces a 1% decrease in the quantity of fast food demanded. The income elasticity of demand for fast food is ____________, and therefore fast food is _______________

A. Negative, an inferior good
B. Negative, a normal good
C. Positive, an inferior good
D. Positive, a normal good

Answer 1

The income elasticity of demand for fast food is negative, which means that fast food is an inferior good.

Step-by-step explanation:

The income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. In this case, a 3% increase in income leads to a 1% decrease in the quantity of fast food demanded. Since the income elasticity of demand is negative, we can conclude that fast food is an inferior good.

When the income elasticity of demand is negative, it means that as income increases, the quantity demanded for the good decreases. This suggests that as people's income rises, they tend to shift their preferences towards higher quality, healthier food options instead of fast food.

If a 3% increase in income across the economy produces a 1% decrease in the quantity of fast food demanded, the income elasticity of demand for fast food is negative. This negative income elasticity of demand indicates that as income rises, the quantity of fast food demanded decreases, categorizing fast food as an inferior good. Therefore, the correct answer is A. Negative, an inferior good.