Question

The quantity demanded of good A rises as income rises. It follows that income elasticity of demand is __________than 0, and good A is a(n) __________ good. a. greater; inferior b. greater; normal c. greater; substitute d. less; normal e. greater; complementary

Answer 1

Answer:

b. greater; normal

Explanation:

Income elasticity describes the response of the demand of a certain good to the change of the income of the consumers. If the elasticity of income is greater than zero (or is positive) , then we can categorize that particular good as a "normal good". This means that as the income of the consumers increases, the demand of that particular good increases as well.

The counter part of a normal good is called inferior good. They have a negative elasticity of income, which means as the income of consumers increases, the demand of that particular good decreases.