Arrange the following goods in the ascending order of the underlying income elasticity of demand.

(A) Necessities

(B) Inferior goods

(C) Normal goods 

(D) Luxury goods

(E) Giffen goods

Choose the correct answer from the options given below:

The correct answer is (E), (B), (A), (C), (D). 

Key Points Income elasticity of demand:

• According to the Income elasticity of demand definition, it is the elasticity in demands resulting from the changes in the income of the customers. It is expressed as the percent change in the demanded quantity per percent change in income. Mathematically, it is expressed by the income elasticity of demand formula.
• Income elasticity of demand (YED)= %change in quantity/ % change in income

Important Points 

• In the case of a Giffen good, the positive income effect is stronger than the negative substitution effect so that the consumer buys less of it when its price falls.
• An inferior good means an increase in income causes a fall in demand. It is good with a negative income elasticity of demand (YED). 
•  A necessity is one whose income elasticity is less than unity.
• A normal good means an increase in income causes an increase in demand. It has a positive income elasticity of demand YED. 
• A luxury good or service is one whose income elasticity exceeds unity.

Hence, The correct answer is (E), (B), (A), (C), (D).