A good with income elasticity exactly 1 indicates that a 5% rise in income leads to a 5% rise in quantity demanded.

• A. Normal good with elasticity between 0 and 1.
• B. Normal good with elasticity greater than 1.
• C. Inferior.
• D. Normal good with elasticity equal to 1.

Answer: (D)

Income elasticity of demand measures how much the quantity demanded changes when income changes. If elasticity is exactly 1, a percent change in income leads to an identical percent change in quantity demanded. So a 5% rise in income results in a 5% rise in quantity demanded. This unitary elasticity is positive, meaning the good is normal (demand increases with income). If elasticity were between 0 and 1, the response would be less than proportional; if greater than 1, more than proportional; if negative, the good would be inferior. Therefore, the good is a normal good with income elasticity equal to 1.