Answer to Question #185982 in Microeconomics for Mame

Question

If household income in the GCC has decreased 18% over the past year, and new car sales in the region have decreased from 1.1 million to 875,000. Does this indicate that cars are normal or inferior goods? Show your calculations.        

Answer 1

It indicates that the cars are normal goods because their demand falls when Income decreases.Normal goods are those whose demand increases as people's incomes and purchasing power rise and vice versa the situation in our case is vice versa:

From the information we observe a decrease of sales from 1.1 million to 875,000 which implies that the quantity demanded falls by :

(1,100,000-875,000)=225,000

Therefore the demand falls by 225,000 as the income in the GCC also falls by 18% indicating that cars are normal goods