If a consumer's preferences for two goods, say food and clothing, are such that as income decreases, consumption of food increases but consumption of clothing decreases, we can say that:
A)food and clothing are inferior goods.
B)food is a normal good and clothing is an inferior good.
C)food is an inferior good and clothing is a normal good.
D)food and clothing are both normal goods.

Question

Quizplus · Accepted Answer

In this scenario, as income decreases, consumption of food increases. This indicates that food is an inferior good. On the other hand, as income decreases, consumption of clothing decreases, which implies that clothing is a normal good. Hence, the correct option is C - food is an inferior good and clothing is a normal good. This pattern of increasing consumption of an inferior good (food) and decreasing consumption of a normal good (clothing) with decreasing income indicates that food is an inferior good and clothing is a normal good. This is because as income decreases, consumers are forced to shift their consumption towards lower-priced goods, and for food, this means consuming more of the cheaper options. Conversely, for clothing, consumers may switch to cheaper options, but they also may cut back on the quantity or frequency of purchasing clothing altogether, indicating a decrease in demand for clothing as income decreases.

If a Consumer's Preferences for Two Goods, Say Food and Clothing