Depending on the nature of goods, their elasticity can vary.
To arrange the goods in ascending order of income elasticity of demand, we need to consider how demand changes with income:
1. Giffen Goods
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Income Elasticity: Strongly Negative
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Explanation: A rare subset of inferior goods where people buy more as price rises, and demand falls as income rises due to poverty constraints.
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Example: Extremely cheap staple foods in very poor communities.
2. Inferior Goods
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Income Elasticity: Negative
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Explanation: Demand decreases when income rises, but less dramatically than for Giffen goods.
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Example: Cheap processed food, public bus travel (for some income groups).
3. Necessities
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Income Elasticity: Low Positive (0 < YED < 1)
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Explanation: People continue buying necessities even as income rises, but demand increases less than proportionally.
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Example: Milk, rice, electricity.
4. Normal Goods
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Income Elasticity: Moderate Positive (YED > 0)
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Explanation: Demand increases as income rises but slows down with further increases in income.
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Example: Branded clothes, household items.
5. Luxury Goods
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Income Elasticity: High Positive (YED > 1)
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Explanation: Demand increases more than proportionally with income.
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Example: High-end electronics, foreign vacations.
6. Veblen Goods
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Income Elasticity: Very High Positive
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Explanation: These are status-symbol goods—demand increases with both price and income because people buy them to signal wealth.
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Example: Designer handbags, luxury watches, high-end cars.