Assume you are consuming two goods,X and Y.Suppose that the money prices for X and Y remain unchanged,but your income increases by 20%.What happens to your consumption of good X?
A)it stays the same
B)it increases
C)it increases or decreases,depending on whether it is normal or inferior
D)it increases by 20%
E)it decreases

Question

Quizplus · Accepted Answer

We cannot determine the change in consumption of good X based solely on the change in income. It depends on whether good X is normal or inferior. If good X is a normal good, then an increase in income will lead to an increase in consumption of good X, ceteris paribus. If good X is an inferior good, then an increase in income will lead to a decrease in consumption of good X, ceteris paribus. Therefore, the correct answer is C, as we need to know whether good X is normal or inferior to determine the change in consumption.

Assume You Are Consuming Two Goods,X and Y