Economists define normal goods 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?
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Normal goods with income elasticity less than one: These are goods whose demand increases as income increases, but at a slower rate than the increase in income. These goods are considered necessities or essential goods. So, we can call this category **Necessity Show more…
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