CA Foundation · Business Economics · Theory of Demand and Supply
Ravi's monthly income rises and, as a result, he buys fewer loose-grain packets of low-quality rice and shifts to branded basmati rice. For Ravi, the low-quality rice is best described as which type of good?
Low-quality rice is an inferior good for Ravi because his demand for it falls as his income rises. Inferior goods have a negative income effect on demand, unlike normal goods, whose demand rises with income. The relationship has nothing to do with complementarity.
- ANormal good
- BGiffen good only if its price has also fallen
- CInferior goodCorrect
- DComplementary good
Explanation
An inferior good is one whose demand falls when consumer income rises. Ravi's purchase of low-quality rice declines as income rises, so it is inferior. A normal good would show rising demand with income. Complementary goods relate to use together with another good, which is not the case here.
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