ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -If a good is a luxury, its income elasticity of demand is Positive and greater than 1. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

Detailed explanation-2: -Luxury goods represent normal goods associated with income elasticities of demand greater than one. Consumers will buy proportionately more of a particular luxury good compared to a percentage change in their income.

Detailed explanation-3: -The demand for luxury goods increases as consumer’s income increases. This means that luxury goods are dependent on the consumers’ income level. Therefore, the income elasticity of demand for luxury goods should be greater than one.

Detailed explanation-4: -If the income elasticity of demand is greater than 1, the good or service is considered a luxury and income elastic. A good or service that has an income elasticity of demand between zero and 1 is considered a normal good and income inelastic.

Detailed explanation-5: -An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. An inelastic demand or inelastic supply is one in which elasticity is less than one, indicating low responsiveness to price changes.