A Level Economics AQA Practice Exam

What defines a normal good?

1. A good for which demand decreases as income rises

2. A good for which demand remains unchanged with income variations

3. A good for which demand increases as income rises

4. A good that is always a luxury item

The correct answer is: A good for which demand increases as income rises

A normal good is defined by the relationship between its demand and consumers' income. When income rises, the demand for a normal good also increases. This relationship signifies that as individuals have more disposable income, they are more likely to purchase more of these goods because they can afford them, reflecting a positive correlation between income and demand. In contrast, an inferior good would see a decrease in demand as income increases, while a giffen good is an exception within inferior goods that defies the law of demand under particular circumstances. Goods that are considered luxury items are generally normal goods, but not all normal goods are luxury items; many are everyday necessities that can exhibit increased demand as consumers become wealthier. Therefore, the defining characteristic of a normal good is its increased demand with rising income, which is why this answer is accurate.