If a 10 percent increase in consumer incomes leads to a 15 percent increase in the quantity demanded for a good, the good is a _________ good with an income elasticity of________ .
A)luxury; 0.67
B)necessity; 1.5
C)luxury; 1.5
D)necessity; 0.67

Question

Quizplus · Accepted Answer

A luxury good is one where the quantity demanded increases more than proportionately to the increase in income. The income elasticity of a luxury good is therefore greater than 1. In this case, the quantity demanded increases by 15 percent when income increases by 10 percent, which gives an income elasticity of 1.5.

If a 10 Percent Increase in Consumer Incomes Leads to a 15