3. Low-income families consume proportionately more of which of the following kinds of goods?
a. Luxury goods.
b. Substitute goods.
c. Normal goods.
d. Inferior goods.
ANS
a. Incorrect. Higher income families will consume proportionately more luxury goods.
b. Incorrect. Without knowing more about the substitute, we cannot say that there is any relationship between income and the consumption of substitute goods.
c. Incorrect. Higher income families will consume proportionately more normal goods.
d. Correct. For inferior goods, demand increases when income decreases.