Question

An increase in income causes the demand of normal goods to _________ and the price of...

An increase in income causes the demand of normal goods to _________ and the price of normal goods to

a. ​Increase; increase

b. ​Decrease; increase

c. ​Increase; decrease

d. ​Decrease, decrease

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Answer #1

Answer to the following question:

Option a: Increase, Increase.

Explanation: The normal goods has a positive income elasticity of demand (>0). This means that an increase in the income of the consumer increases the demand for the normal good. Now given the supply curve of the normal good upward sloping, any increase in the demand will raises its price. Since the demand curve of the normal good will shift upward with an increase in the income of the consumer.

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