Jim recently graduated from college.His income increased tremendously from earning $5000 a year to $60,000 a year.Jim decided that instead of renting he will buy a house.This implies that
A)Houses are normal goods for Jim
B)Houses are inferior goods for Jim
C)Renting and Owning are complementary for Jim
D)Need information on the price of houses

Question

Quizplus · Accepted Answer

Since Jim's decision to buy a house correlates with his increase in income, it suggests that houses are normal goods for him. As his income increased, he chose to spend more on a better quality of accommodation. If houses were inferior goods, he would have chosen to rent a lower quality of accommodation with his increased income. C is incorrect, as renting and owning are substitutes, not complements. D is irrelevant, as we do not need to know the price of houses to determine the type of good they are for Jim.

Jim Recently Graduated from College