Question:
Which one of the following combinations of income and price elasticities of demand is consistent with a normal good which has a downward sloping demand curve?
(1) Negative / Positive
(2) Positive / Negative
(3) Negative / Negative
(4) Positive / Positive
(5) Negative / Zero
Correct Answer:
(2)
Answer Explanation:
A “normal good” means that as income rises, demand rises, resulting in a Positive Income Elasticity of Demand (YED). A “downward sloping demand curve” follows the Law of Demand, meaning as price rises, quantity demanded falls, resulting in a Negative Price Elasticity of Demand (PED).
Topic: Elasticity Year: 2017
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