Question : If the income elasticity of demand for a good is positive, it means the good is:
Option 1: A normal good.
Option 2: An inferior good.
Option 3: A luxury good.
Option 4: A substitute good.
Correct Answer: A normal good.
Solution : The correct answer is (a) A normal good.
A positive income elasticity of demand indicates that as income increases, the quantity demanded of the good also increases. This positive relationship suggests that the good is a normal good. Normal goods are those for which demand increases when income rises and decreases when income falls. These goods are considered typical or regular goods that people tend to consume more of as their income increases.
It is important to note that a positive income elasticity of demand does not necessarily imply that the good is a luxury good. Luxury goods are a subset of normal goods that have an income elasticity of demand greater than 1, indicating that their demand increases more than proportionally with income.
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