Suppose good X has a positive income elasticity of demand.This implies that good X could be (i)a normal good.
(ii)a necessity.
(iii)an inferior good.
(iv)
A luxury.
A) (i)only
B) (i)and (ii)only
C) (i),(ii),and (iv)only
D) (iii)only

Question

Quizplus · Accepted Answer

A positive income elasticity of demand indicates that as income increases, the demand for the good also increases. This is characteristic of normal goods and luxury goods, but not necessities or inferior goods. Therefore, options (iii) and (iv) can be eliminated. Option (i) is correct as good X could be a normal good. Option (ii) is also correct as a normal good can be a necessity, but it is not exclusive to normal goods. Therefore, the best choice is (i), (ii), and (iv), which is option C.

Suppose Good X Has a Positive Income Elasticity of Demand