Final answer:
If there is a 20% increase in income but only a 10% increase in demand for some firms' products, these firms are producing normal goods, not luxury or inferior goods. This is because the demand for normal goods increases with income, but at a rate less than the increase in income itself, unlike luxury goods where demand increases more significantly, or inferior goods where demand would decrease.
Step-by-step explanation:
When consumers' income increases by 20%, and the demand for some firms' products rises by only 10%, this indicates that these firms are likely producing normal goods. A normal good is one where the demand increases as income increases, but at a rate less than the income increase for these particular firms. In contrast, for luxury goods, demand typically increases at a higher rate than income because they are more exclusive and desirable as status symbols when consumers have more disposable income.
Therefore, if the increase in demand is notably less than the increase in income, the products from these firms do not exhibit the characteristics of luxury goods, which would have seen a proportionally higher increase in demand. Instead, the products of these firms behave as normal goods, witnessing a demand rise that is positive yet less than proportional to the rise in consumers' incomes.
Nonetheless, these firms' goods are not classified as inferior goods, where the demand would have declined as income rose. Understanding the difference between normal goods, luxury goods, and inferior goods can provide insights into consumer behavior and assist in anticipating market shifts when income levels change.