Question

Sarah gets a salary increase. Before her raise, she purchased 5 pounds of fish and 1 pound of beef stew a month. After her raise, she consumes 2 pounds of fish and 3 pounds of beef stew a month. If everything else is held constant, we know that: _________

a. hamburger is a normal good and steak is an inferior good for Sarah.
b. both steak and hamburger are normal goods for Sarah.
c. hamburger is an inferior good and steak is a normal good for Sarah.
d. both steak and hamburger are inferior goods for Sarah.

Answer 1

C. hamburger is an inferior good and steak is a normal good for Sarah

Step-by-step explanation:

Demand for an inferior good decreases as income increases.

Demand for a normal good increases as income increases.

Because Sarah purchased less hamburger after her salary increase (5 to 2 pounds), she had less demand for it, therefore hamburger is an inferior good for her. And because Sarah purchased more steak after her salary increase (1 to 3 pounds), she had more demand for it, therefore steak is a normal good for her.