You are the owner of a construction company that specializes in new beach- front condominiums. If the income elasticity for your condominiums is 4.25, all of the following statements are true except which one?
A)The condominiums are normal goods.
B)The condominiums are luxury goods.
C)The condominiums are inferior goods.
D)An upcoming economic recession will decrease the demand for your condominiums.

Question

Quizplus · Accepted Answer

A positive income elasticity of demand indicates that the good is a normal good. The larger the value of income elasticity, the more luxury the good is considered to be. Therefore, statements A and B are true. Statement D is also true because during a recession, people's incomes fall, leading to a decrease in demand for luxury goods like beach-front condominiums. However, statement C is false because an income elasticity of demand of 4.25 indicates that the good is a luxury good, not an inferior good.

You Are the Owner of a Construction Company That Specializes