The revenue earned by the company will reduce if the Finance Minister's forecast of an increase in real income by 5% is correct.
Data and Calculations:
Coefficient of income elasticity of demand = (-)0.5
Annual demand of the inferior good = 500 units
Average price of the good per unit = $2,000
Total dollar demand = $1,000,000 ($2,000 x 500)
Increase in real income by 5% = $1,050,000 ($1,000,000 x 1.05)
Decrease in quantity demanded = 475 (500 x 1 - 0.5)
If the price remains $2,000, the revenue will be reduced to $950,000 (475 x $2,000).
But most likely, the price will reduce to at least $1,900 ($2,000 x  1 - 0.5), then the revenue will be reduced to $902,500 (475 x $1,900).
Thus, the revenue earned by this company will reduce if the Minister is correct in the forecast's 5% increase in real income.
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