If average incomes rise and the quantity demanded for widgets increases, widgets are

If average incomes rise and the quantity demanded for widgets increases, widgets are

• A. Giffen good
• B. Normal good
• C. Luxury good
• D. Inferior

Answer: (B)

This question tests how demand responds to changes in income through income elasticity of demand. A positive income elasticity means that when incomes rise, quantity demanded increases, which is the case for normal goods. Since average incomes rise and more widgets are demanded, widgets are a normal good. Giffen goods would require a special price-change scenario and typically involve an inferior effect driven by the income effect, not a direct income increase. An inferior good would see demand fall as income rises, which contradicts the observed increase. A luxury good is simply a normal good with income elasticity greater than one; the information given doesn’t specify the magnitude of the response, only that demand increases, so the appropriate classification is normal.

This question tests how demand responds to changes in income through income elasticity of demand. A positive income elasticity means that when incomes rise, quantity demanded increases, which is the case for normal goods. Since average incomes rise and more widgets are demanded, widgets are a normal good. Giffen goods would require a special price-change scenario and typically involve an inferior effect driven by the income effect, not a direct income increase. An inferior good would see demand fall as income rises, which contradicts the observed increase. A luxury good is simply a normal good with income elasticity greater than one; the information given doesn’t specify the magnitude of the response, only that demand increases, so the appropriate classification is normal.