Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It is a luxury good
B
It is an inferior good
C
It has no relation to income
D
It is a necessity
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 happens because the good is considered a normal good, which is something that people want more of when they have more money to spend. For example, if a family's income rises, they might buy more organic food because they can afford it, showing that organic food has a positive income elasticity. In contrast, if a good had a negative income elasticity, it would mean that demand decreases as income rises, indicating it is an inferior good. Understanding this helps businesses and economists predict how changes in income levels can affect sales of different products.
Detailed Explanation
A positive income elasticity means that as people earn more money, they buy more of this good. Other options are incorrect because Some might think that a positive income elasticity means the good is inferior; It might seem like a good with no relation to income could be anything.
Key Concepts
income elasticity of demand
Topic
Elasticity Formulas and Relationships
Difficulty
easy level question
Cognitive Level
understand
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