Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners at restaurants for this individual are
A) an inferior good.
B) a substitute good.
C) a normal good.
D) both complimentary and inferior.

Question

Quizplus · Accepted Answer

This individual's behavior suggests that dinners at restaurants are a normal good for him/her, as the increase in income leads to an increase in consumption of this good. If dinners at restaurants were an inferior good, the individual would have decreased consumption with an increase in income, and if they were a substitute good, the individual would have shifted consumption away from them towards a substitute good with an increase in income. The option D is incorrect as complimentary goods are consumed together and the question only provides information about the increase in consumption of one good.

Suppose an Individual Experiences a Permanent Increase in Income