A good with an income elasticity of 2.3 is:
A) a luxury.
B) inferior.
C) a necessity.
D) a complement.

Question

Quizplus · Accepted Answer

A good with an income elasticity of 2.3 is categorized as a luxury because a change in income has a proportionately greater effect on the demand for the good. Luxury goods have income elasticities greater than 1, while necessities have income elasticities less than 1. Inferior goods have negative income elasticities. The answer cannot be B) or C) because the question does not provide information on the sign of the income elasticity. The answer cannot be D) because the question is asking about income elasticity, not cross-price elasticity.

A Good with an Income Elasticity of 2