When the consumer's income increases by 50% assuming other conditions are constant, the demand for good Y increases by 25%. What kind of commodity is Y?

Relative to income and demand, when an increase in income causes an increase in the demand for a good, then the good is a normal good. For a normal good, the measure of the responsiveness of demand to a change in income (known as income elasticity of demand) is always greater than 0. In other words, it is positive.

If instead, an increase in income causes a decrease in the demand for a good, then the good is an inferior good. The income elasticity of demand for an inferior good is less than 0. In other words, it is negative.

When the increase in income causes a larger percentage in the demand for a good, then the good is a luxury good. Luxury goods are a special type of normal goods. The income elasticity of demand for a luxury good is greater than 1 since their is a larger percentage increase in the demand.

Income elasticity of demand is calculated by finding the ratio of the percentage increase in the demand to the percentage increase in income.

In the illustration given, the consumer's income increases by 50% causing the demand for good Y to increase by 25%. This is an example of a normal group. i.e increase in income causes an increase in the demand for good Y.

The income elasticity of demand for good Y is given as the ratio of the percentage increase in demand (25%) to the percentage increase in income (50%). Therefore, the income elasticity of demand for good Y is;

25% / 50% = 0.5

Since the income of elasticity of demand for good Y is 0.5 which is greater than 0, good Y is a normal good.