Assume you consume only pasta and steak. As exogenous income rises, you consume more steak, and less pasta. In this case, steak is a normal good, while pasta is an inferior good.

def. The Income effect is a change in consumption only due to income

Absolute changes in consumption define normal/quasi-linear/inferior goods

Normal Good

Income↑…consumption sameQuasi-linear Good Income↑…consumptionInferior Good

On the other hand, relative changes in consumption define luxury/homothetic/necessary goods.

+% Income > +% consumption — **Luxury Good
+%** Income = +% consumption — **Homothetic Good
+%** Income < +% consumption — **Necessary Good**

Income Elasticity of Demand