An economist estimates that on average, for every 1 percent increase in income, the quantity of European cars demanded increases by 1.93 percent. From this information one can conclude that European cars are:
A) a luxury.
B) a necessity.
C) an inferior good.
D) a negative good.

Question

Quizplus · Accepted Answer

European cars are considered a luxury because the income elasticity of demand is greater than 1, indicating that demand for these cars increases more than proportionately as income rises.

An Economist Estimates That on Average, for Every 1 Percent