Question

If income elasticity of demand for a good is greater than 1, the good is called ______.

Options

• Inferior good

• Necessity good

• Luxury good

• Giffen good

Answer 1

If income elasticity of demand for a good is greater than 1, the good is called luxury good.

Explanation:

A luxury good has income elasticity greater than 1, which means demand increases more than proportionately when income rises.