Question

Suppose you have surveyed a few industries and obtained information about the income elasticity of demand for their products. If you expect that the economy is headed for a long recession, you would advise people to look for jobs in an industry with:_______.

A. a "low" negative income elasticity coefficient such as -0.2.

B. a "high" negative income elasticity coefficient such as -4.

C. a high positive income elasticity coefficient such as 5.

D. a low positive income elasticity coefficient such as 0.8.

Answer 1

B) a "high" negative income elasticity coefficient such as -4.

Step-by-step explanation:

Income elasticity of demand measures the changes in the quantity demanded of a product or service when consumers' income changes. A negative income elasticity coefficient means that the product is an inferior good, which means that as the income of consumers decreases, the quantity demanded for inferior goods increases.

In this case, since you expect a long recession to hit the country, an industry that sells goods with a high negative income elasticity coefficient will actually be benefited since its total sales will increase.