Suppose income falls 5 percent in a year,and as a result,housing construction falls from 10 million to 5 million units annually.Based on this information,housing starts are
A)An inferior good.
B)A normal good.
C)Price-elastic.
D)Price-inelastic.

Question

Quizplus · Accepted Answer

This situation suggests that housing starts are a normal good, meaning that as income falls, people are less able to afford new housing and therefore housing construction decreases. If housing starts were an inferior good, we would expect them to increase as income falls (as they are a cheaper substitute for other goods). The question does not provide information about the price elasticity of housing starts.

Suppose Income Falls 5 Percent in a Year,and as a Result,housing