If consumers' income increases by one dollar and consumers consume both food and non-food,________.
A) spending on food consumption will always increase.
B) spending on food consumption will increase but by less than one dollar if both food and non-food are normal goods.
C) spending on food consumption will increase only if non-food is inferior good.
D) spending on food consumption will increase only if non-food is normal good.

Question

Quizplus · Accepted Answer

If both food and non-food items are normal goods, then an increase in income will lead to an increase in spending on both goods. However, the increase in spending on food consumption will be less than one dollar since consumers will allocate some of the additional income towards non-food items as well.

If Consumers' Income Increases by One Dollar and Consumers Consume