For each of the following goods, state whether it is a normal good, a luxury, a

Question

For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. Explain your answers. f. Electric power.

A) Inferior. Increases in income lead to slightly more use of electric power. However, high-income people do not use much more electric power than low-income people, so elasticity is positive but less than 1.

B) Normal and necessity. Increases in income lead to slightly more use of electric power. However, high-income people do not use much more electric power than low-income people, so elasticity is positive and greater than 1.

C) Normal and necessity. Increases in income lead to slightly more use of electric power. However, high-income people do not use much more electric power than low-income people, so elasticity is positive but less than 1.

D) Inferior. Increases in income lead to less use of electric power. However, high-income people do not use much less electric power than low-income people, so elasticity is positive but greater than 1.

Explanation / Answer

From the given options, the correct answer can be option B. Normal and necessity. Increases in income lead to slightly more use of electric power. However, high-income people do not use much more electric power than low-income people, so elasticity is positive and greater than 1.

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