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March 25, 2017

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Some texts define a "luxury good" as a good for which the income elasticity of demand is greater than 1. Suppose that a consumer purchases only two goods. Can both goods be luxury goods? Explain

  • Micro Econ - ,

    Assume all of one's income is spent on the two goods.

    Hint: If a good is elastic and price goes up by, say, 10%. Do one spend more dollars on that good or less dollars.

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