For each of the following goods, state whether it is a normal good, a luxury, a

Question

For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. Explain your answers.

c. Mink coats.

A) Inferior. Individuals tend to purchase significantly fewer mink coats as their income increases because they spend more money on faux fur coats.

B) Normal and luxury. Everyone needs a few coats. As income goes up people do not usually choose to get rid of the coats they already have (elasticity is positive and less than 1 in the short run).

C) Normal and luxury. Everyone needs a few coats, but as income goes up, people buy nicer coats (elasticity is positive and greater than 1 in the short run).

D) Normal and necessity. Most people have about the same need for coats. As income increases people have little reason to replace the coats they already have (elasticity is positive and greater than 1 in the short run).

Explanation / Answer

Correct option (C).

Mink coat is normal because as income increases, quantity demanded of mlk coat will increase. It is a luxury because with increase in income, consumers switch to the more expensive mink coat, rnedering its income elasticity greater than 1 in short run.

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