Luxury goods have an income elasticity that is positive and greater than one. However, if the income elasticity of a demand for a good is negative, then the good is an inferior good.

Question

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Income elasticity of demand measures how the quantity demanded of a good responds to a change in income. A positive income elasticity greater than one indicates that the good is a luxury, as demand increases more than proportionally with income. Conversely, a negative income elasticity indicates that the good is an inferior good, meaning demand decreases as income increases.

Luxury Goods Have an Income Elasticity That Is Positive and Greater