The income elasticity of demand for dental services is 2.40, and the income elasticity of demand for nursing homes is 0.90. Based on these estimates, dental services are a(n) _____ and nursing home care is a(n) _____.

Question

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The income elasticity of demand for a good indicates how the demand for that good changes as consumer income changes. A value greater than 1 indicates a luxury good (demand increases more than proportionally with income), while a value between 0 and 1 indicates a normal good (demand increases with income but less than proportionally). Therefore, dental services with an elasticity of 2.40 are a luxury good, and nursing home care with an elasticity of 0.90 is a normal good.

The Income Elasticity of Demand for Dental Services Is 2