Practice question · Sort into groups
Sort into normal goods vs inferior goods.
Groups: Normal good · Inferior good
- Instant noodles (replaced by better meals as income rises)
- Organic food (demand rises with income)
- International travel
- Bus transport (replaced by car as income rises)
Hints
- Ask what happens to demand as income rises.
- Some goods are what people move away from when they can afford better.
Show the answer
Normal good: Organic food (demand rises with income), International travel
Inferior good: Instant noodles (replaced by better meals as income rises), Bus transport (replaced by car as income rises)
Why
Normal goods: demand rises with income. Inferior goods: demand falls as consumers upgrade to better alternatives.
Practise Income and Substitution Effects
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More questions on Income and Substitution Effects
- The substitution effect always pushes consumption of a cheapened good upward, and the income effect can push…
- The income effect of a price decrease always increases the quantity demanded of the cheaper good.
- For a Giffen good, demand rises when the price rises. Why does that not refute the law of demand?
- Match each concept to its definition.