Question

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. Think about products that would fall into each category. Can you come up with a name for each category

Answer 1

income elasticity is less than one - water

income elasticity is greater than one - designer handbag

Step-by-step explanation:

Normal goods are goods whose demand increases when income increases and falls when income falls.

When income elasticity is less than one it is known as inelastic demand and when income elasticity is greater than one, it is known as elastic demand,

necessity goods are examples of goods with inelastic demand. for example, water. one cant do without water as it is needed for survival. if income increases, there would be little or no change in quantity demanded

luxury goods typically have an elastic demand. as income increases, more of the good would be demanded. an example of a luxury good is a designer handbag