If the income elasticity of demand is greater than 1, what type of good is it?

When the income elasticity of demand is greater than 1, it indicates that the demand for the good increases by a proportionally larger amount than the increase in income. This characteristic is typical of luxury goods. Luxury goods are items that are not necessary for basic living but are desired for comfort and pleasure, and as people's incomes rise, they tend to purchase these goods in greater quantities.

In contrast, inferior goods have an income elasticity of less than 0, meaning that demand for these goods decreases as income increases. Normal goods have an income elasticity of greater than 0 but less than or equal to 1, suggesting that while demand rises with income, it does not increase as significantly as for luxury goods. Giffen goods, which are more of a theoretical concept, can exhibit an increase in demand as prices rise, which does not relate to income elasticity directly in the same way.

Thus, when the income elasticity of demand exceeds 1, it signifies that the good in question is a luxury good, reflecting its high sensitivity to income changes and its status as a non-essential desirable item.