An increase in consumer income will increase demand for a ______ but decrease demand for a ________.
An increase in consumer income will increase demand for a ______ but decrease demand for a ________.
The correct option is B Normal good, inferior good
In the case of normal goods, income and demand are directly
related, meaning that an increase in income will cause demand to rise and a
decrease in income causes demand to fall. It should be noted that ‘normal’ and
‘inferior’ are purely relative concepts. Any good or service could be an
inferior one under certain circumstances. Even luxury goods can become inferior
over time. Video players were once luxuries, but as incomes have risen
consumers have switched to DVDs.
Demand for the three goods, shown here, all respond very
differently to the same change in income, Y to Y1. Demand for the normal good
increases from Q to Q1 and demand for the inferior good falls from Q to Q3.
In the case of normal goods, income and demand are directly related, meaning that an increase in income will cause demand to rise and a decrease in income causes demand to fall. It should be noted that ‘normal’ and ‘inferior’ are purely relative concepts. Any good or service could be an inferior one under certain circumstances. Even luxury goods can become inferior over time. Video players were once luxuries, but as incomes have risen consumers have switched to DVDs.
Demand for the three goods, shown here, all respond very differently to the same change in income, Y to Y1. Demand for the normal good increases from Q to Q1 and demand for the inferior good falls from Q to Q3.
