You purchase both potatoes and gasoline regularly.Your income increases and you purchase more gasoline and less potatoes.This implies that
A)gasoline has a negative substitution effect.
B)potatoes are normal goods.
C)gasoline is an inferior good.
D)gasoline is a normal good.

Question

Quizplus · Accepted Answer

If an increase in income leads to an increase in the demand for a good, it is a normal good. Since the person in the scenario is purchasing more gasoline with the increased income, gasoline is a normal good. This is not an example of an inferior good (C) because an inferior good is one whose demand decreases when income increases. Additionally, there is no indication of a negative substitution effect (A) since the person is not purposely substituting gasoline for potatoes. Finally, we cannot conclude that potatoes are normal goods (B) solely based on the information given.

You Purchase Both Potatoes and Gasoline Regularly