Using the income elasticity of demand to characterize goods Data collected from the economy of Royal City reveals that an 18% increase in income leads to the following changes: • A 29% increase in the quantity of houses demanded • A 17% decrease in the quantity of spades demanded • A 14% increase in the quantity of horses demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.) Good Income Elasticity of Demand Normal or Inferior Good Houses -1.61 Spades Horses Which of the following three goods is most likely to be classified as a luxury good ? Houses Spades Horses

Positive salary versatility of interest is related with typical products; an expansion in pay will prompt an ascent sought after. In the event that pay versatility of interest of a ware is under 1, it is a need decent.

In the event that the flexibility of interest is more prominent than 1, it is an extravagance decent or a prevalent decent. Extravagance products as a rule have Income Elasticity of Demand > 1, which means they are pay flexible.

This infers shopper request is more responsiveness to an adjustment in pay. For instance, precious stones are an extravagance decent that is salary versatile.