Final answer:
An income elasticity greater than 0 indicates a normal good, which can be either a necessity or luxury good. Necessity goods have an elasticity less than one, while luxury goods have an elasticity greater than one. Inferior goods possess a negative income elasticity.
Step-by-step explanation:
Economists define normal goods as having a positive income elasticity of demand. This means as income increases, the demand for these goods also increases. Normal goods with an income elasticity of less than one are referred to as necessity goods, while those with an income elasticity of more than one are categorized as luxury goods.
A necessity good is something that consumers will buy regardless of changes in their income, such as basic food items and household utilities, while luxury goods are items that consumers spend more on as their income rises, like expensive cars and jewelry.
In contrast, an inferior good has a negative income elasticity, which indicates that demand decreases as income rises; examples include fast food and budget brands. It is important to note that an income elasticity greater than zero indicates a normal good, which can be either a luxury or necessity good depending on whether its elasticity is greater or less than one.