Answer to Question #83293 in Microeconomics for Wilbur Dawson

Question

using the interpretations of income elasticity theory, what types of goods are these:
1.71
.53
.99
.01

Answer 1

All this goods have positive income elasticity of demand, so there are normal goods; an increase in income will lead to a rise in demand.

If income elasticity of demand of a commodity is less than 1, it is a necessity good (2nd, 3rd, 4th <1). By the way, 4th good has nearly zero income elasticity of demand. This shows that quantity bought is constant regardless of changes in income. 2nd good has nearly unit income elasticity of demand. In this case increase in income is accompanied by same proportionate increase in quantity demanded.

If the elasticity of demand is greater than 1, it is a luxury good or a superior good (for example, 1st, 1.76>1).