Which statement best describes a normal good with income elasticity between 0 and 1?

Which statement best describes a normal good with income elasticity between 0 and 1?

• A. An inferior good.
• B. A luxury good.
• C. A normal good with income elasticity between 0 and 1.
• D. A normal good with income elasticity greater than 1.

Answer: (C)

Income elasticity of demand shows how much quantity bought responds to a change in income. For a normal good, demand rises as income rises. When the elasticity is between 0 and 1, the quantity demanded increases with income, but by a smaller percentage than the income change, meaning the good is normal but not a luxury. So the statement that describes a normal good with income elasticity between 0 and 1 matches this behavior. Inferior goods would see demand fall as income rises (negative elasticity). Luxury goods have elasticity greater than 1, meaning demand grows more than proportionally with income, which is not the case here. A normal good with elasticity greater than 1 would be classified as a luxury.

Income elasticity of demand shows how much quantity bought responds to a change in income. For a normal good, demand rises as income rises. When the elasticity is between 0 and 1, the quantity demanded increases with income, but by a smaller percentage than the income change, meaning the good is normal but not a luxury. So the statement that describes a normal good with income elasticity between 0 and 1 matches this behavior. Inferior goods would see demand fall as income rises (negative elasticity). Luxury goods have elasticity greater than 1, meaning demand grows more than proportionally with income, which is not the case here. A normal good with elasticity greater than 1 would be classified as a luxury.