Income Elasticity Reveals Good Classification

Steps:

• Income elasticity of demand (E_I) measures how quantity demanded changes with income: E_I = (%ΔQ_d) / (%ΔY).
• A negative E_I (-0.6) means demand decreases as income rises.
• Goods with negative E_I are inferior, as higher income leads consumers to switch to better alternatives.
• This matches option D, distinguishing from normal goods (positive E_I).

Why D is correct:

• Inferior goods have negative income elasticity (E_I < 0), per economic definition, indicating reduced demand with rising income.

Why the others are wrong:

• A: Substitutes relate to cross-price elasticity, not income elasticity.
• B: Necessities have inelastic demand (price elasticity near 0), unrelated to income elasticity sign.
• C: Normal goods have positive income elasticity (E_I > 0).

Final answer: D