If income rises and demand for a good increases, what type of good is it?

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

Answer: (B)

The key idea is that how demand responds to changes in income classifies goods. When income rises and the quantity demanded increases, the good is a normal good. This reflects positive income elasticity of demand for normal goods—their purchases grow as people have more money to spend.

Inferior goods do the opposite: demand falls as income increases. Giffen goods are a special, unusual type of inferior good where the income effect can cause demand to rise as price rises, but they are still linked to income declines in typical cases. A luxury good is a subset of normal goods where demand rises more than proportionally with income; the question simply states that demand increases, so the broad category is normal.