Question

The distinction between a normal and an inferior good is A. when income​ increases, demand for a normal good increases while demand for an inferior good falls. B. normal goods are used together while inferior goods are used for the same purposes. C. when income​ increases, demand for a normal good decreases while demand for an inferior good increases. D. normal goods are used for the same purposes while inferior goods are used together.

Answer 1

The distinction between normal and inferior goods lies in how demand changes with income increases; demand for normal goods rises, while for inferior goods, it declines.

Step-by-step explanation:

The key distinction between a normal good and an inferior good relates to how the demand for these goods changes as income changes. For a normal good, demand increases as income rises, reflecting an income elasticity of demand that is positive. This means that when people have more income, they are more likely to purchase more of such goods, which can include items like luxury cars, fine jewelry, and vacations. On the other hand, an inferior good has a negative income elasticity of demand, which indicates that as income rises, demand for these goods declines. Individuals tend to buy less of these goods when they can afford better alternatives. For instance, as income increases, people might switch from generic brand groceries to name brand ones, or from used cars to new cars.

Answer 2

The correct answer is option A.

Step-by-step explanation:

Normal goods have positive income elasticity, so when there is an increase in the income of the consumer, the quantity demanded of the normal goods will increase.

On the other hand, the inferior goods have a negative income elasticity. So when the income of the consumer increases the demand for inferior goods decline. This is because as income increases, the consumers will prefer normal goods.