Question

You consume two goods, eggs and wine. On Monday, you consume exactly 8 eggs and 4 wines. One day the price of eggs goes up, the price of wine falls, and you now consume exactly 8 eggs and 6 wines. Are eggs a normal or an inferior good? (If your answer involves statements about the relative locations of various points on a graph, be sure to give reasons for those statements.)

Answer 1

Monday: 8 eggs + 4 wines

One next day: when the prices of eggs rise and the prices of wine fall: 8 eggs + 6 wines

Reason: the eggs are a Necessary good as with the rise in the price of the commodity its demand remained unaffected i.e. it did not fall as said in the "Law of Demand" ( that there is an inverse relationship between the demand and price). But in the case of necessary goods, the demand of the commodity remains unaffected with the rise or fall in prices.

As per the graph:   the demand curve would remain in the same position with the rise in price.

The wine, however, is represented as a Normal Good where with the fall in price its demand or the consumption increases as defined in the Law of Demand.

As per the graph: here the demand point would shift upward showing an increase in demand with a fall in price.