If the income elasticity of demand for a good is greater than one, the good is generally classified as a:
Correct answer: C. Luxury good
- A. Necessity good
- B. Inferior good
- C. Luxury good
- D. Complementary good
Explanation
An income elasticity greater than one means demand rises by a larger percentage than income. Such goods are commonly classified as luxury goods, whereas necessities usually have income elasticity between zero and one.
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About Microeconomics
Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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