Question

Suppose that the income elasticity of demand for peanut butter is 0.75. Which of the following is true?

a. Peanut butter is a normal good, because income elasticity is positive.

b. Peanut butter is an inferior good, because income elasticity is positive.

c. Peanut butter is a normal good, because income elasticity is less than 1.

d. Peanut butter is an inferior good, because income elasticity is less than 1.

Answer 1

c. Peanut butter is a normal good, because income elasticity is less than 1.