14 If a product is a normal good then its income elasticity

14) If a product is a normal good, then its income elasticity of demand is A) zero. B) indeterminate. C) positive. D) greater than 1. E) negative.

Solution

Income elasticity of demand measures the effect of change in income on the quantity demanded of a particular product. Goods are said to be normal when the income elasticity of demand is positive. A normal good is a good is consumption is increased when there is an increase in the income of the consumer. Income elasticity is therefore greater than zero. However there are good for which an increase in income tax to a decrease in consumption and these are known as inferior goods. For them the income elasticity of demand is negative or less than zero.

Therefore the correct option is option C.