Question

Identify the normal and inferior goods from the following list of items:

A) Generic brand clothing
B) Luxury brand handbags
C) Public transportation
D) Private car ownership

Answer 1

From the list, A. generic brand clothing and public transportation are considered inferior goods because demand for them decreases as income rises.

Step-by-step explanation:

To identify the normal and inferior goods from the given list:

• Generic brand clothing - As incomes rise, people tend to purchase less of these, so it is considered an inferio good.
• Luxury brand handbags - These would typically be considered a normal good, as demand increases with higher income.
• Public transportation - This is often categorized as an inferior good, since higher income levels usually lead to a decrease in its demand as people opt for private transport.
• Private car ownership - This is considered a normal good because as income rises, more people tend to buy private vehicles.

Economists categorize normal goods based on income elasticity. Goods with an income elasticity less than one are necessities, while those with an elasticity greater than one are considered luxuries.

Provide in summary: Normal goods, which include luxury handbags and private cars in this list, have a positive income elasticity of demand. Inferior goods like generic brand clothing and public transportation have a decrease in demand as income rises.