What is an inferior good?

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The income elasticity of demand measures the relationship between a change in quantity demanded and a change in income. The formula is:

(Percentage change in quantity demanded of good x) divided by (the percentage change in real consumers' income)

Inferior goods have a negative income elasticity of demand. This means that demand falls as income rises. An example is frozen vegetables - as we become richer and earn more income, we consume less of this as we can afford to eat nicer foods.

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