Ask Question
25 October, 21:29

Normal goods are defined as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category?

+4
Answers (1)
  1. 25 October, 22:41
    0
    Necessity Goods : Income Inelastic (< 1)

    Luxury Goods : Income Elasticity (> 1)

    Explanation:

    Elasticity is responsiveness of demand change to price change. Formula : - % change in demand / % change income

    Normal goods have positive income elasticity, i. e. demand increase with income rise & decrease with income rise.

    Necessity good's demand responds less to income change & is income inelastic (< 1), % change in demand < % change in price.

    Eg : Medicines

    Luxury good's demand is more responsive to income change & is income elastic (> 1), % change in demand > % change in price.

    Eg : Luxury Cars
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Normal goods are defined as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity ...” in 📙 Social Studies if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers