Question

Consider a graph on which one good Y is on the vertical axis and the only other good X is on the horizontal axis. On this graph the income-consumption curve has a negative slope for low incomes, then it takes a zero slope for a higher income, and then it takes a positive slope for even higher incomes (the curve looks like a U-shape, first falling and then rising as income increases). This curve illustrates that:
A) At low income level X is an inferior good, and at high income level Y is a normal good.
B) At low income level Y is a normal good, and at high income level X is an inferior good.
C) At low income level Y is an inferior good, and at high income level both are normal good.
D) At low income level both are inferior good, and at high income level both are normal good.

Answer 1

Answer d

At higher income both are inferior goods and at lower income both are normal goods.

This is because it is given that there is a negative slope for the low incomes and positive slope for the higher income.