If a good's income elasticity is positive, which statement is true?

If a good's income elasticity is positive, which statement is true?

• A. The good is an inferior good.
• B. The good is a normal good.
• C. The good is a complement.
• D. The good has a negative cross-price elasticity.

Answer: (B)

Income elasticity of demand tells us how much the quantity demanded responds to changes in income. When that elasticity is positive, demand rises as income rises, which means the good is a normal good. Inferior goods, by contrast, have negative income elasticity, so demand falls as income increases. The idea about complements or cross-price elasticity relates to how the quantity demanded changes with the price of another good, not with income, so those options don’t hinge on income elasticity. Therefore, the correct interpretation is that the good is a normal good. If you want a bit more context, strong-positive income elasticity typically points to luxury goods, while smaller positive values indicate necessities, but both are still normal goods.

Income elasticity of demand tells us how much the quantity demanded responds to changes in income. When that elasticity is positive, demand rises as income rises, which means the good is a normal good. Inferior goods, by contrast, have negative income elasticity, so demand falls as income increases. The idea about complements or cross-price elasticity relates to how the quantity demanded changes with the price of another good, not with income, so those options don’t hinge on income elasticity. Therefore, the correct interpretation is that the good is a normal good. If you want a bit more context, strong-positive income elasticity typically points to luxury goods, while smaller positive values indicate necessities, but both are still normal goods.