Question

For a normal good, __________ falls as income __________; for an inferior good, __________ rises as income __________.

a.

supply; falls; demand; falls

b.

demand; rises; demand; rises

c.

demand; falls; demand; falls

d.

supply; rises; supply; falls

Answer 1

Answer- The correct option is C ie., DEMAND;FALLS;DEMAND;FALLS. Changes in income level will lead to change in the demand as it is a pert if factors other than demand. Thus, when there is a change in factors other than demand then there is either an increase or decrease in the demand level. Since normal goods are considered to be better quality goods thus they have a high price and people afford them when there is an increase in income level ,for example Organic food etc. On the other hand inferior goods are goods with low quality and people buy them when they have low income. Thus, when the income increases the demand for normal goods increases and when the income level decreases the demand for inferior goods increases and demand for normal goods decreases.