Income elasticity affects a normal good and an inferior good in different manner , in the case of normal good income elasticity has positive affects that mean raise in income also increases the demand for goods and on the other hand in the case of inferior good income elasticity has a negative affect that mean raise in income decreases the demand for the inferior good and Visa Versa .

Depending on the values of the income elasticity of demand, goods can be broadly categorized as inferior goods and normal goods.Normalgoods have a positive income elasticity of demand; as incomes rise, more goods are demanded at each price level.

Normal goods whose income elasticity of demand is between zero and one are typically referred to as necessity goods, which are products and services that consumers will buy regardless of changes in their income levels. Examples of necessity goods and services include tobacco products, haircuts, water, and electricity.

As income rises, the proportion of total consumer expenditures on necessity goods typically declines.Inferiorgoods have a negative income elasticity of demand; as consumers' income rises, they buy fewer inferior goods. A typical example of such type of product is margarine, which is much cheaper than butter.

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