Question

Whether the income elasticity for a good indicates that it is a normal good or an inferior good is important information. Which of the following describes these goods most likely to be classified as normal goods?

A) A positive income elasticity
B) A negative income elasticity
C) An income elasticity of zero
D) An income elasticity that varies with income level

Answer 1

Economists define normal goods as having a positive income elasticity. Necessities are normal goods with income elasticity less than one, while luxury goods are normal goods with income elasticity greater than one.

Step-by-step explanation:

Economists define normal goods as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Goods with income elasticity less than one are called necessities, while goods with income elasticity greater than one are called luxury goods.