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    Normal and Inferior goods

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    The recent recession has hurt several industries due to a decline in demand by households. Think of the relationship between income and demand and discuss the following questions:

    1. What are "normal" goods? Give an example in our current economy.

    2. What are "inferior" goods? Give an example in our current economy.

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    Solution Preview

    1. What are "normal" goods? Give an example in our current economy.

    Normal goods are good whose demand increase when there is an increase in real income of consumers. Demand for such goods fall when there is a decline in real income of consumers.

    Income elasticity of demand for normal goods is positive.

    Consumers buy more of normal goods when their real income ...

    Solution Summary

    Solution discusses the nature of normal and inferior goods.

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