Question

Say that the elasticity of market demand for some good with respect to average consumer income is 2.5. Then you know that _____

Answer 1

The income elasticity of the demand is elastic, if the income elasticity is a positive one and that would be a normal good. That is an increase in the income of the consumer also leads to the increase in the consumption of the goods and services. If the income elasticity is more than 1 (this case) that would be luxury goods. The increase in the income leads to a more than proportional increase in the consumption of the good. The income elasticity is inelastic when the value is less than one.