Question

**Mary makes the following choices of X _{1} and
X_{2} when prices and income are as follows:**

** X _{1}
X_{2}
P_{1}
P_{2} I**

Week 1 10 20 2 1 40

Week 2 12 8 2 2 40

Week 3 20 10 2 2 60

Based on this information we can conclude that

Mary considers both goods to be normal goods |
||

Mary considers both goods to be inferior goods |
||

X |
||

X |

Answer #1

Here both the goods X and Y are normal goods because of the following reasons:

i) income has direct relation with quantities demanded:

We observed that as income increases from 40 to 60 while price of both the goods remain constant, quantity demanded of both the goods increases. Thus income effect is positive and goods are normal.

ii) Inverse relation with the prices:

As price of X2 rises from 1 to 2 quantity demanded of good 2 falls from 20 to 8. This shows price elasticity of own good is negative and goods are normal.

Option a is the correct answer.

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