The relationship between changes in income and purchase of a good indicates
A)whether the good is a luxury or necessity.
B)whether the good is normal or inferior.
C)whether the good is a complement or substitute.
D)Both a and b

Question

Quizplus · Accepted Answer

Changes in income can indicate whether a good is a luxury or necessity (a) and whether it is a normal or inferior good (b). For example, as income increases, individuals may purchase more luxury goods and fewer necessities, indicating that the luxury goods are income-elastic, while necessities are income-inelastic. Similarly, as income increases, individuals may switch from purchasing inferior goods to higher quality goods, indicating the inferior goods are income-inelastic or normal goods.

The Relationship Between Changes in Income and Purchase of a Good