Suppose the supply curve for breakfast cereals is upward sloping.Suppose also that as average household income increases we observe a fall in the price of breakfast cereal.We can conclude that breakfast cereal is a(n)
A)luxury good.
B)substitute good.
C)inferior good.
D)normal good.
E)necessity good.

Question

Quizplus · Accepted Answer

Since the supply curve for breakfast cereals is upward sloping, an increase in demand would typically result in higher prices. However, the fact that as average household income increases, we observe a fall in the price of breakfast cereal implies that it is an "inferior good." An inferior good is one where demand decreases as income rises. This is opposite to a "normal good," where demand increases as income rises.

Suppose the Supply Curve for Breakfast Cereals Is Upward Sloping