FIGURE 6-4
-Refer to Figure 6-4. For both goods, the price falls from P0 to P1. The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C. Good Y is certainly an) good.
A) normal
B) inferior
C) luxury
D) necessity
E) Giffen

Question

FIGURE 6-4
-Refer to Figure 6-4. For both goods, the price falls from P0 to P1. The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C. Good Y is certainly an) good.
A) normal 
B) inferior 
C) luxury 
D) necessity 
E) Giffen

Quizplus · Accepted Answer

The fact that the quantity demanded for Good Y increases as the price falls indicates that it is a normal good. If it were an inferior good, the quantity demanded would decrease as the price fell, as the income effect would dominate the substitution effect. Good Y is not a luxury good, as the increase in quantity demanded is not proportionally greater than the decrease in price. It is also not a necessity or a Giffen good, as the quantity demanded does not increase as the price increases.

FIGURE 6-4 -Refer to Figure 6-4. for Both Goods, the Price Falls