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

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

Quizplus · Accepted Answer

If a good has positive income elasticity of demand, it means that as income increases, quantity demanded of the good also increases. This is consistent with normal goods (i.e. goods for which demand increases as income increases) and luxury goods (i.e. goods for which demand increases more than proportionally as income increases). It is not consistent with necessities (i.e. goods for which demand remains the same even as income increases) or inferior goods (i.e. goods for which demand decreases as income increases). Therefore, the best answer is (C): good X could be a normal good, a necessity, or a luxury good.

Suppose Good X Has a Positive Income Elasticity of Demand