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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

Ravi's monthly income rises from ₹30,000 to ₹45,000. He now buys fewer packets of loose tea and more branded tea bags at unchanged prices. For Ravi, loose tea is best classified as:

Loose tea is an inferior good for Ravi. His income rose and prices stayed the same, yet he bought less of it, switching to branded tea bags. A good whose demand falls as consumer income rises is defined as inferior, unlike normal goods.

  1. AA Giffen good necessarily, because its price has not changed
  2. BA normal good, because demand rises with income
  3. CA complementary good to branded tea bags
  4. DAn inferior good, because demand falls as income risesCorrect

Explanation

Loose tea consumption falls when income rises while prices stay constant, which defines an inferior good (negative income effect). Classing it as normal is wrong because normal goods show rising demand with income. Complementarity concerns joint use, not substitution by a better product.

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