Which description best matches a good with positive income elasticity between 0 and 1?

Which description best matches a good with positive income elasticity between 0 and 1?

• A. Normal good with income elasticity between 0 and 1.
• B. Inferior good.
• C. Normal good with elasticity greater than 1.
• D. Luxury good.

Answer: (A)

Positive income elasticity means that as income increases, the quantity demanded also increases. The size of that response is captured by the income elasticity value. When it lies between 0 and 1, the good is a normal good whose demand rises with income, but not very strongly—the increase in quantity demanded is smaller than the increase in income. This describes necessities rather than luxuries. An inferior good would have negative elasticity (demand falls as income rises). A normal good with elasticity greater than 1 would be a luxury, where demand grows more than proportionally with income. So the best description is a normal good with income elasticity between 0 and 1.

Positive income elasticity means that as income increases, the quantity demanded also increases. The size of that response is captured by the income elasticity value. When it lies between 0 and 1, the good is a normal good whose demand rises with income, but not very strongly—the increase in quantity demanded is smaller than the increase in income. This describes necessities rather than luxuries. An inferior good would have negative elasticity (demand falls as income rises). A normal good with elasticity greater than 1 would be a luxury, where demand grows more than proportionally with income. So the best description is a normal good with income elasticity between 0 and 1.