The income elasticity of rice in India is estimated to be -0.247. What does the
ID: 1190473 • Letter: T
Question
The income elasticity of rice in India is estimated to be -0.247. What does the model of supply and demand predict if incomes in India rise?
a decrease in rice consumption and increase in price
a decrease in rice consumption and decrease in price
an increase in rice consumption and decrease in price
an increase in rice consumption and increase in price
a decrease in rice consumption and increase in price
a decrease in rice consumption and decrease in price
an increase in rice consumption and decrease in price
an increase in rice consumption and increase in price
Explanation / Answer
Answer: Income elasticity of demand says that how much demand for rice change consequent upon rise of income. Income elasticity is negative which implies that increase in the income shall lead to fall in consumption of rice. Rice being inferior good as per the elasticity, the price of rice also shall fall. Hence, Correct option is :
A decrease in rice consumption and decrease in price.
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