For a product with an income elasticity greater than one, a price increase will cause the consumer's real income to
A) rise and the quantity purchased to fall.
B) fall and the quantity purchased to rise.
C) fall and the quantity purchased to fall.
D) remain constant.
E) rise and the quantity purchased to rise.

Question

Quizplus · Accepted Answer

A product with an income elasticity greater than one is a luxury item, which means that as income increases, people tend to buy more of it. Therefore, a price increase will lead to a decrease in quantity purchased, and the fall in real income will compound this effect, leading to a further decrease in quantity purchased.

For a Product with an Income Elasticity Greater Than One