Question

Select the goods that are likely to have an inferior income elasticity of demand for the average American consumer:

		Frozen Dinners
		Instant Noodles
		Spam
		Water
		Gym Membership

Answer 1

The Income Elasticity of Demand is the responsiveness of the quantity demanded for a good to a change in consumer income. It is measured as the ratio of the percentage change in quantity demanded to the percentage change in income.

Ans: Spam

Spam is a lower-cost food item and its demand gets affected as the price changes. Consumers realize that Spam and other lower-cost foods can be substituted for costlier cuts of meat as a way of controlling their stretched food budgets. Alternatively, when the cost of food decreases, the sale of Spam declines as the consumers go for costlier cuts of meat.