1
$\begingroup$

I am trying to write my performance assessment about income and price elasticities of demand but I have a hard time figuring out if a house is a normal necessity good or a normal luxury good.

Everyone needs a house, however, no one needs a mansion. So which is it, is a house a normal necessity good or a normal luxury good?

$\endgroup$
2
$\begingroup$

I would expect necessity goods to have an income elasticity between 0 and 1 in keeping with Engel's Law, which was originally observed for food (an obvious necessity good).

Housing indeed exhibits this feature because poorer households spend a larger fraction of their income on housing. That makes housing look like a necessity good. E.g.,

enter image description here

(source: http://www.lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx)

| improve this answer | |
$\endgroup$
0
$\begingroup$

Dependent on what part of the world you live in and are you living within your means. I assume you are from a first world country, it is generally expected that you own a house by any standards (Homelessness is frowned upon by society generally whether we like to admit it or not), so I would class this as a Normal Necessity Good.

| improve this answer | |
$\endgroup$
  • $\begingroup$ There are other possibilities as well as owning a house and homelessness, eg renting, shared ownership, living in house owned by parents. $\endgroup$ – Adam Bailey Nov 19 '17 at 10:37

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.