FIGURE 6- 3
-Refer to Figure 6- 3. 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 a(n) good.
A) luxury
B) normal
C) inferior
D) necessity
E) Giffen

Question

FIGURE 6- 3
-Refer to Figure 6- 3. 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 a(n) good.
A) luxury 
B) normal 
C) inferior 
D) necessity 
E) Giffen

Quizplus · Accepted Answer

The fact that the quantity demanded of Good Y increases as income increases (from point B to point C) indicates that it is a normal good. The graph does not provide enough information to determine if it is a luxury or necessity good. It is not an inferior or Giffen good, as these goods have a negative income effect, meaning that as income increases, the quantity demanded of the good decreases.

FIGURE 6- 3 -Refer to Figure 6- 3. for Both Goods, the Price