When the income elasticity of demand is greater than unity, the commodity is ________.

a necessity

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a luxury

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an inferior good

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a non-related good

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Solution

The correct option is B a luxury
A negative income elasticity of demand is associated with inferior good.
A positive income elasticity of demand is associated with normal good.
For a necessary good, income elasticity of demand of a commodity is less than 1 but greater than 0.
For a luxury or superior good, elasticity of demand is greater than 1.

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