As the economy descended into the most recent recession, household income fell by 5 percent. Over the same period, total expenditures on automobile repairs increased by 3 percent. Assuming that all other economic variables were held constant,
A) the income elasticity of demand is equal to 0.6.
B) automobile repairs must be a normal good.
C) automobile repairs must be an inferior good.
D) Both A and B are correct.

Question

Quizplus · Accepted Answer

The increase in expenditures on automobile repairs despite a decrease in household income suggests that automobile repairs are an inferior good, as demand for them increases when income decreases.

As the Economy Descended into the Most Recent Recession, Household