If the income elasticity of demand for a good is positive but less than 1, then:
A) demand for the good will increase at a faster rate than price.
B) the good is an inferior good.
C) demand for the good will increase at a slower rate than income.
D) the good is a luxury good.

Question

Quizplus · Accepted Answer

When the income elasticity of demand for a good is positive but less than 1, it indicates that the good is a normal good, and demand for it increases with income, but at a slower rate than the increase in income. This does not necessarily relate to the rate of price increase (A), nor does it indicate that the good is inferior (B) or a luxury (D), as luxury goods typically have an income elasticity greater than 1.

If the Income Elasticity of Demand for a Good Is