Which statement correctly contrasts normal and inferior goods?

Which statement correctly contrasts normal and inferior goods?

• A. Giffen goods
• B. Inferior goods
• C. Luxury goods
• D. Normal goods

Answer: (D)

Demand response to income is what this is about. Normal goods rise in demand when income increases, reflecting a positive income elasticity of demand. Inferior goods, on the other hand, fall in demand as income rises, showing a negative income elasticity. So the statement that best contrasts them is that normal goods are the category that increases consumption with higher income, while inferior goods decrease. An everyday example: as people earn more, they buy more branded clothing and dining out (normal goods) but less inexpensive staples or generic brands (inferior goods). The other options point to special cases or related concepts—Giffen goods are a rare type of inferior good with unusual upward-sloping demand, and luxury goods are a subset of normal goods that have high income elasticity; they don’t capture the basic contrast between normal and inferior goods.

Demand response to income is what this is about. Normal goods rise in demand when income increases, reflecting a positive income elasticity of demand. Inferior goods, on the other hand, fall in demand as income rises, showing a negative income elasticity. So the statement that best contrasts them is that normal goods are the category that increases consumption with higher income, while inferior goods decrease. An everyday example: as people earn more, they buy more branded clothing and dining out (normal goods) but less inexpensive staples or generic brands (inferior goods). The other options point to special cases or related concepts—Giffen goods are a rare type of inferior good with unusual upward-sloping demand, and luxury goods are a subset of normal goods that have high income elasticity; they don’t capture the basic contrast between normal and inferior goods.