CA Foundation · Business Economics · Theory of Demand and Supply
Rohan's monthly income rises from ₹30,000 to ₹40,000. His purchases of loose (unbranded) atta fall from 20 kg to 12 kg per month, because he now buys branded packaged atta. For Rohan, loose atta is best described as:
Loose atta is an inferior good for Rohan because his consumption of it falls when his income rises. Goods with a negative relationship between income and quantity demanded are inferior, whereas normal goods show demand rising with income.
- AA normal good
- BAn inferior goodCorrect
- CA Giffen good always bound to a rising demand curve
- DA complementary good of packaged atta
Explanation
Demand for loose atta falls when income rises, so the income effect is negative. A good with negative income effect is an inferior good. It is a substitute, not a complement, of packaged atta. Calling it normal ignores the fall in quantity.
Did you get it right without looking?
One question tells you little. A timed set on Theory of Demand and Supply shows your real accuracy, how long you take and where you lose marks.
More Theory of Demand and Supply questions
- A rise in the price of cars in India is expected to reduce the demand for petrol. In economic terms, petrol and cars are:
- In the market for smartphones, consumer incomes rise and, at the same time, the cost of key components falls sharply. Assuming smartphones a…
- If the demand for a good is unchanged and its supply curve shifts to the left, which of the following describes the new equilibrium?
- A textile mill in Surat adopts a new technology that lowers its cost of producing each metre of cloth. Other things remaining the same, what…
- A steel manufacturer in Jamshedpur adopts a new technology that lowers its cost of production per tonne. Other things remaining the same, wh…
- The cross elasticity of demand for tea with respect to the price of coffee is +0.6, and that of tea with respect to the price of sugar is −0…