Question : If the income elasticity of demand for a good is greater than 1, it means the good is:
Option 1: A normal good.
Option 2: An inferior good.
Option 3: A luxury good.
Option 4: A substitute good.
Correct Answer: A luxury good.
Solution : The correct answer is (c) A luxury good.
A luxury good is a type of good for which the demand is highly responsive to changes in consumer income. When the income elasticity of demand is greater than 1, it indicates that the percentage change in quantity demanded is more than the percentage change in income. In other words, as consumers' income increases, they tend to have a larger increase in demand for the good, indicating that it is a luxury item that is considered more of a luxury as income rises.
Examples of luxury goods include high-end cars, designer clothing, luxury vacations, and expensive electronics. These goods are typically considered non-essential or discretionary, and their consumption tends to increase significantly as consumers' income increases.
Question : If the income elasticity of demand for a good is less than 1, it means the good is:
Question : If the income elasticity of demand for a good is less than 0, it means the good is:
Regular exam updates, QnA, Predictors, College Applications & E-books now on your Mobile