Question

Suppose good A is an inferior good. Suppose good B is a normal good. Suppose good A and
good C are substitutes. Suppose good B and good D are complements.

Question 5 If an income increases in an economy, how are the equilibrium price of good B and the
equilibrium quantity of good B affected?
A. The equilibrium price of good B goes up & The equilibrium quantity of good B goes
up
B. The equilibrium price of good B goes down & The equilibrium quantity of good B
goes down
C. The equilibrium price of good B goes up & The equilibrium quantity of good B goes
down
D. The equilibrium price of good B goes down & The equilibrium quantity of good B
goes up
E. None of the above is correct

Answer 1

Normal good can be defined as a good whose demand rises with rise in income and vice versa.

Since good B is a normal good, rise in income will increase demand (rightward shift of demand curve) of it and:

The equilibrium price of good B goes up & The equilibrium quantity of good B goes
up.

Ans (A)