Question

ABC Inc., produces baby food in a developing country. Firms in this industry produce differentiated products such that no two brands of baby food are perfect substitutes. The demand for? ABC's product has traditionally been high.?However, recent data on economic indicators suggests a shift in? people's consumption patterns. There has been a marked increase in the per capita GDP in this country. While this has led to an increase in the demand for many goods and? services, the demand for? ABC's baby food has fallen even though the other brands of baby food are still doing well.

Which of the following is most strongly implied by this? information???

A. ?ABC's baby food is a Giffen good.

B. The equilibrium price of? ABC's baby food is likely to increase.

C. Most baby food brands are considered as inferior goods.

D. The demand curve for? ABC's baby food is continually shifting rightward.

E. The demand curve for baby food in general has shifted to the left.

Answer 1

Answer:

The correct answer is option E.

Explanation:

An increase in per capita GDP implies that the income of the consumers is increasing.

The demand for ABC baby food though has decreased. This means that this baby food is an inferior good.

In case of inferior good, income and demand are inversely related to each other. So an increase in income will cause the demand to decrease and vice versa.

The demand curve will move to the left as at the same price less quantity of baby food will be demanded now.