Arizona State University (ASU) ECN212 Microeconomic Principles Exam 1 Practice

When the income elasticity of demand is greater than 0, it indicates that as consumer income increases, the quantity demanded for that good also increases. This characteristic defines the good as a normal good. Normal goods exhibit a direct relationship between income and demand; when people have more income, they typically purchase more of these goods because they are viewed as desirable or necessary.

For instance, if a consumer receives a raise and decides to buy more organic food, that organic food is considered a normal good because its demand increases with higher income. In contrast, if the income elasticity of demand were less than 0, the good would be considered inferior, as demand would drop when income rises. Goods classified as Giffen or complementary typically have specific elasticities or relationships that do not align with a positive income elasticity, making them distinct from normal goods.