A normal good is defined as a good for which demand decreases when:
A) income increases
C) income decreases.
B) the price decreases
D) the price increases
The correct answer and explanation is :
Correct Answer:
A) income increases
Explanation:
A normal good is a type of good for which demand increases as consumer income increases, and demand decreases when consumer income decreases. This means that people tend to buy more of a normal good when they have more money and buy less when they have less money.
When income increases, consumers can afford to buy more goods and services. If a product is a normal good, its demand will rise as a result. Conversely, if income decreases, people will have less purchasing power, and they will cut back on their spending, leading to a decrease in demand for the normal good.
Understanding Normal Goods with an Example
Consider restaurant dining as an example. When people’s income increases, they tend to eat out at restaurants more often, leading to a rise in demand for restaurant meals. However, if their income decreases, they may choose to eat at home more frequently to save money, reducing the demand for restaurant meals.
Contrast with Inferior Goods
In contrast to normal goods, inferior goods are those for which demand decreases when income increases and demand increases when income decreases. For example, instant noodles or public transportation may be considered inferior goods because when people earn more, they may switch to more expensive alternatives like fresh meals or private cars.
Conclusion
In summary, normal goods follow the principle that demand increases with higher income and decreases with lower income. This relationship helps businesses and economists predict consumer behavior and market trends.
Here is an illustration representing the concept of normal goods in economics. It contrasts two scenarios: a family dining in a luxurious restaurant when income is high and eating simple home-cooked meals when income is low.