posted by Polina on .
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
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.