Question

If there are two goods and if income doubles and the price of good 1 doubles while the price of good 2 stays constant, a consumer's demand for good
A. 2 will decrease only if it is a Giffen good for her
B. 2 will decrease only if it is an inferior good for her.
C. 1 will increase only if it is a Giffen good for her.
D. 2 will increase only if it is an inferior good for her
E. None of the above.

Answer 1

Answer:

Option (B) is correct.

Explanation:  

Inferior goods are the goods whose demand is inversely related with the income level of an individual. This means that an increase in the income level of an individual will lead to reduce the demand for inferior goods and if a decrease in the income of an individual then as result demand for inferior good increases.

So, if good 2 is inferior good then its demand decreases with increase in the income level of an individual.