A supermarket chain in South Africa analysed its sales data. The table shows the income elasticity of demand for selected products.

| Product | YED |
|---------|-----|
| Organic vegetables | +1.8 |
| White bread | +0.2 |
| Instant noodles | -0.6 |

During an economic recession, which product is likely to see the largest percentage increase in demand?

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Question

A supermarket chain in South Africa analysed its sales data. The table shows the income elasticity of demand for selected products.

| Product | YED |
|---------|-----|
| Organic vegetables | +1.8 |
| White bread | +0.2 |
| Instant noodles | -0.6 |

During an economic recession, which product is likely to see the largest percentage increase in demand?

Accepted Answer

Instant noodles — Award 1 mark for identifying that instant noodles (YED = -0.6) is the only inferior good, so demand will increase when income falls during a recession. A is incorrect — organic vegetables are luxury goods (YED > 1) so demand will fall significantly. B is incorrect — white bread is a normal good so demand will fall. D is incorrect — the different YED values mean changes will differ.

Answer

Instant noodles

Answer

White bread

Answer

All products will see equal changes

Answer

Organic vegetables

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