Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21.This indicates that
A)wine and spirits are luxury goods.
B)wine is a luxury good and spirits are inferior goods.
C)wine and spirits are highly price elastic.
D)wine is a luxury good and spirits are necessities.

Question

Quizplus · Accepted Answer

A high income elasticity of demand indicates that the good is a luxury item, which means that as income increases, the demand for the good also increases at a faster rate. As both wine and spirits have high income elasticity, they can be classified as luxury goods.

Studies Show That the Income Elasticity of Demand for Wine