Which statement correctly describes a good whose income elasticity is always greater than 1 across income ranges?

Which statement correctly describes a good whose income elasticity is always greater than 1 across income ranges?

• A. That good has income elasticity always exceeding 1.
• B. An inferior good.
• C. A normal good over some income ranges and an inferior good over other ranges.
• D. An income elasticity greater than 0 but less than 1.

Answer: (A)

Income elasticity of demand shows how responsive quantity demanded is to changes in income. When this elasticity is greater than 1, demand rises more than proportionally as income increases, which is the hallmark of a luxury good. If a good’s income elasticity is always greater than 1 across all income ranges, it means that no matter how rich or poor the population gets, demand for that good grows faster than income, maintaining its status as a luxury rather than a necessity or a normal good with a smaller response. An inferior good, by contrast, has a negative income elasticity: as income goes up, demand falls. A normal good can have a range of elasticities, sometimes above 1 in higher-income groups and possibly below 1 in others, but it isn’t guaranteed to stay above 1 in every income range. And a good with elasticity between 0 and 1 implies a necessity with a less-than-proportional response to income changes, not a luxury.

Income elasticity of demand shows how responsive quantity demanded is to changes in income. When this elasticity is greater than 1, demand rises more than proportionally as income increases, which is the hallmark of a luxury good. If a good’s income elasticity is always greater than 1 across all income ranges, it means that no matter how rich or poor the population gets, demand for that good grows faster than income, maintaining its status as a luxury rather than a necessity or a normal good with a smaller response.

An inferior good, by contrast, has a negative income elasticity: as income goes up, demand falls. A normal good can have a range of elasticities, sometimes above 1 in higher-income groups and possibly below 1 in others, but it isn’t guaranteed to stay above 1 in every income range. And a good with elasticity between 0 and 1 implies a necessity with a less-than-proportional response to income changes, not a luxury.