Assume you are consuming two goods,X and Y.Suppose that the money prices for X and Y remain unchanged,but your income increases by 20%.What happens to your consumption of good X?
A)it increases
B)it stays the same
C)it increases or decreases,depending on whether it is normal or inferior
D)it decreases
E)it increases by 20%

Question

Quizplus · Accepted Answer

The answer depends on whether Good X is normal or inferior. If Good X is normal, i.e., its demand increases when income increases, then the consumption of Good X will increase as income increases. On the other hand, if Good X is inferior, i.e., its demand decreases when income increases, then the consumption of Good X will decrease as income increases. Therefore, the answer is C, as we do not have enough information about whether Good X is normal or inferior.

Assume You Are Consuming Two Goods,X and Y