Consider a scenario where the demand is estimated to be represented by the follo

Question

Consider a scenario where the demand is estimated to be represented by the following equation: a=1000-10+0.11+10R, Where Px is the price of X, I represents the income of the consumer, Py is the price of another related in consumption good, and Qx is the quantity demanded of X. Based on this demand function, what can be concluded about X? A) X is a normal good B) X is an inferior good C) The demand for X is not affected by changed in the consumer's income D) Not enough information is provided to determine anything about X

Explanation / Answer

Option A: X is normal good.

From the demand equation, we can see that there is a positive association between quantity demanded and Income. That is, when income increases, Qx also increases. This can be checked by looking at coefficient of I which is positive. Hence, X is a normal good.

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