Q5Managerial Economics & Financial Accounting
Question
4 marks
Explain following with help of suitable graph. (1\times4=4) a) Zero income elasticity b) Negative Income elasticity c) Unit incom elasticity d) Income elasticity greater than unity
Answer
Graphs for zero, negative, unit, and greater than unit income elasticity of demand.
a) Zero Income Elasticity: Vertical line (demand doesn't change as income rises, e.g., salt). b) Negative Income Elasticity: Downward sloping (demand falls as income rises, inferior goods). c) Unit Income Elasticity: A straight line from the origin at a 45-degree angle (percentage change in income equals percentage change in demand). d) Income Elasticity > 1: Upward sloping but relatively flat (demand rises faster than income, luxury goods).