Question

Suppose income of the residents of Ecoville increase by $50$% and the quantity of fresh milk demanded increases by $30$%. We can say that fresh milk in economics sense is a/an ________.

• A. luxury good
• B. inferior good
• C. normal good
• D. can't be determined

Answer 1

The correct option is C normal good

Income elasticity of demand $=\frac{percent△Q}{percent△Y}$ $=\frac{30percent}{50percent}=0.6$.
From the above, it's clear that income elasticity of demand for fresh milk is $0.6$ which is positive and less than $1$. Income elasticity of demand is known to be positive and less than $1$ for normal goods.