For Product X, the income elasticity of demand is 1.16. Which of the following is therefore definitely true?
A) Product X is a necessity.
B) Product X is income elastic.
C) Product X is a substitute for some other good.
D) Product X is something that mostly poor people will buy.

Question

Quizplus · Accepted Answer

A positive income elasticity of demand greater than 1 indicates that Product X is income elastic, meaning that as income increases, demand for the product will increase at a faster rate than income. This suggests that Product X is a luxury good or a high-end product, not a necessity. The income elasticity of demand cannot provide information about whether or not a product is a substitute for some other good or whether it is mostly purchased by poor people.

For Product X, the Income Elasticity of Demand Is 1