The income elasticity of demand _____.
A)must be negative because of the law of diminishing marginal utility
B)could be positive or negative or zero,depending on the nature of the good
C)must be positive because consumers tend to buy more at higher incomes
D)is usually zero because "you can only have so much"
E)can never be zero

Question

Quizplus · Accepted Answer

The income elasticity of demand can be positive, negative, or zero, depending on the nature of the good. For example, luxury items like yachts and expensive cars tend to have a high income elasticity of demand (meaning demand for them rises as incomes rise), while necessities like food and basic clothing tend to have a low income elasticity of demand (meaning demand for them is relatively stable regardless of income level). Therefore, choice B is the best answer.

The Income Elasticity of Demand _____