📚 Learning Guide
Elasticity and Tax Incidence
easy

What does a positive income elasticity of demand indicate about a good?

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Choose the Best Answer

A

It is a normal good

B

It is an inferior good

C

It has no demand

D

It is a luxury good

Understanding the Answer

Let's break down why this is correct

Answer

A positive income elasticity of demand means that as people's income increases, the demand for that good also increases. This usually indicates that the good is a normal good, which is something people tend to buy more of when they have more money. For example, if a person's income goes up and they decide to buy more organic fruits, this shows that organic fruits have a positive income elasticity. In contrast, if the demand for a good decreases as income rises, that would indicate it is an inferior good, like instant noodles. So, a positive income elasticity tells us that the good is valued more when consumers have higher incomes.

Detailed Explanation

A positive income elasticity means that when people earn more money, they buy more of this good. Other options are incorrect because An inferior good is something people buy less of when they have more money; Saying a good has no demand is incorrect.

Key Concepts

income elasticity of demand
Topic

Elasticity and Tax Incidence

Difficulty

easy level question

Cognitive Level

understand

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