Question

Suppose you are considering buying stock in the stock market, and your objective is to maximize your net worth. Furthermore, your study of the market reveals that the economy will be slowing down over the next several months. Under these conditions, it would be best to purchase stock in companies that produce

A) normal goods.
B) luxury goods.
C) inferior goods.
D) price elastic goods.

Answer 1

Answer:

C) Inferior Goods

Explanation:

Inferior goods refer to those goods whose quantity demanded rises as income of the consumer falls and similarly their quantity demanded falls as the income of the consumers rise.

Thus, there exists an inverse relationship between income of a consumer and his quantity demanded of inferior goods.

In the given case, an economic slow down is anticipated in the future. Thus for an investor it would be wise to purchase stocks of the companies dealing in inferior goods since when the situation (slowdown) shall arise, the quantity demanded for inferior goods shall rise which shall lead to a jump in the stock prices.

Thus, the investor would gain out of such a situation.