Final answer:
We attach significance to the sign of income elasticity as it indicates whether a good is normal or inferior. Positive income elasticity represents normal goods, divided into necessities (elasticity < 1) and luxury goods (elasticity > 1), while negative income elasticity indicates inferior goods with decreasing demand as income rises.
Step-by-step explanation:
Yes, we attach significance to the positive or negative of a result when calculating income elasticity. A positive income elasticity signifies that the good is a normal good, meaning demand for the product increases as consumer income rises.
Conversely, a negative income elasticity indicates that the good is an inferior good, where demand decreases as income increases because consumers tend to prefer higher-quality goods as their income improves.
Economists use the concept of income elasticity to classify goods into different types. For normal goods with positive income elasticity, those with an elasticity less than one are often called necessities, whereas those with an elasticity greater than one are referred to as luxury goods or superior goods.
The understanding of income elasticity is crucial in determining how consumer demand for different goods will change with economic growth or during different phases of the business cycle.