The relationship between how much money people make and what they want to buy can be explained simply:

1. Normal Goods:

   • When people earn more money, they often buy more normal goods.
   • For example, fancy items are considered normal goods and usually have an income elasticity of demand greater than 1. This means that as income goes up, the demand for these items goes up a lot!

2. Inferior Goods:

   • These are the opposite of normal goods. When people make more money, they tend to buy less of these goods.
   • The income elasticity for inferior goods is negative, meaning that as income rises, demand for these products falls.

3. Statistical Insights:

   • Studies show that necessities, like basic food and clothing, usually have an income elasticity between 0 and 1.
   • On the other hand, luxury goods can have an elasticity of 2 or even higher.
   • For instance, if someone’s income goes up by 10%, they might buy 15% more luxury items. This shows that people really want these products when they have more money!