A positive income elasticity of demand coefficient indicates that:
A) a product is an inferior good.
B) a product is a normal good.
C) two products are substitute goods.
D) two products are complementary goods.

Question

Quizplus · Accepted Answer

A positive income elasticity of demand coefficient indicates that the demand for a good increases as income increases, which is a characteristic of a normal good. An inferior good, on the other hand, has a negative income elasticity of demand coefficient, meaning that the demand for the good decreases as income increases. The concepts of substitute and complementary goods are related to cross-price elasticity of demand, not income elasticity of demand.

A Positive Income Elasticity of Demand Coefficient Indicates That