Multiple choice

If the income of a household rises by 20 per cent, the demand for computer rises by 25 per cent. This means computer (in Economics) is a/an

  1. inferior good

  2. luxury good

  3. necessity

  4. none of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Income elasticity of demand = % change in demand / % change in income = 25% / 20% = 1.25. Since income elasticity > 1, computers are a luxury good (demand rises more than proportionally with income). Necessities have income elasticity between 0 and 1. Inferior goods have negative income elasticity.

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