Distinguish normal goods from inferior goods.

Distinguish normal goods from inferior goods.

• A. Normal goods have higher demand as income rises; inferior goods have lower demand as income rises.
• B. Normal goods have lower demand as income rises; inferior goods have higher demand as income rises.
• C. Normal goods are always luxuries; inferior goods are always necessities.
• D. Normal goods are not affected by income; inferior goods are also unaffected.

Answer: (A)

The idea being tested is how demand for goods responds to changes in income. Normal goods rise in demand as income increases, while inferior goods fall in demand as income increases. This is why the best choice states that normal goods have higher demand as income rises and inferior goods have lower demand as income rises. The other statements misstate how income affects demand or conflate income effects with luxury versus necessity; some normal goods can be essential while some inferior goods aren’t always just cheap or unnecessary, and income can affect demand for all goods in this basic framework.

The idea being tested is how demand for goods responds to changes in income. Normal goods rise in demand as income increases, while inferior goods fall in demand as income increases. This is why the best choice states that normal goods have higher demand as income rises and inferior goods have lower demand as income rises. The other statements misstate how income affects demand or conflate income effects with luxury versus necessity; some normal goods can be essential while some inferior goods aren’t always just cheap or unnecessary, and income can affect demand for all goods in this basic framework.