Question

What variables in the demand function determines if a good is normal? Explain why a reduction in the price of a normal good does not increase the demand for that good

Answer 1

Normal goods are luxury cars, clothing, jewelry, etc.

Variables in demand function are price, income, prices of related goods, tastes, and future expectation.

Out of these, the income determines a normal good. In case of normal goods income elasticity is elastic; it means increasing income increases its quantity demand, or vice versa; income elasticity is 0 or more than 0.

Since it depends on income of consumers, the price change doesn’t have any effect on its demand.