Suppose that the income elasticity of demand for good X is greater than 1. Other things being equal, which of the following statements is INCORRECT?
A) Good X is a normal good.
B) The quantity demanded of good X decreases as a consumer's income declines.
C) A consumer buys more X as income rises, but the share of income spent on good X falls.
D) A consumer buys more X as income rises and the share of income spent on good X also rises.

Question

Quizplus · Accepted Answer

If the income elasticity of demand for good X is greater than 1, it means that it is a luxury good, not a normal good (as stated in option A). Option B is also incorrect as the quantity demanded of good X increases as a consumer's income increases. Option C is partially correct, as a consumer may buy more X as income rises, but the share of income spent on it may or may not fall, depending on the degree of income elasticity. Option D is the incorrect statement, as a consumer may buy more X as income rises, but the share of income spent on it may or may not rise, depending on the degree of income elasticity.

Suppose That the Income Elasticity of Demand for Good X