Goods for which demand will rise if income rises or fall if income falls

Goods for which demand will rise if income rises or fall if income falls

• A. Normal goods
• B. Inferior goods
• C. Substitute goods
• D. Complementary goods

Answer: (A)

The idea being tested is how demand responds to changes in income, measured by income elasticity of demand. Goods with positive income elasticity see higher demand as income rises and lower demand as income falls, so this item is a normal good. When people have more money, they buy more of these goods (think branded clothing or dining out); when money is tight, they scale back. Inferior goods behave the opposite, with demand falling as income rises. The terms substitute and complementary describe how demand for one good is related to the price or demand for another good, not directly how demand changes with income.

The idea being tested is how demand responds to changes in income, measured by income elasticity of demand. Goods with positive income elasticity see higher demand as income rises and lower demand as income falls, so this item is a normal good. When people have more money, they buy more of these goods (think branded clothing or dining out); when money is tight, they scale back. Inferior goods behave the opposite, with demand falling as income rises. The terms substitute and complementary describe how demand for one good is related to the price or demand for another good, not directly how demand changes with income.