How can changes in income affect demand for goods?

When considering how changes in income impact demand for goods, it's crucial to understand the distinction between normal goods and inferior goods.

Normal goods are those for which demand increases as consumer income rises. This is because consumers generally have more purchasing power and are willing to spend more on these goods, which they often perceive as higher quality or more desirable. For instance, as income increases, individuals may choose to buy more organic food, new clothing, or upgraded electronics, all of which are considered normal goods.

On the other hand, inferior goods are those for which demand decreases as income rises. These goods typically fulfill basic needs but are seen as lower quality or less desirable options. When consumers have more income, they tend to buy less of these goods in favor of higher-quality substitutes. For example, instant noodles or discount brand products may see a drop in demand as individuals opt for fresher or more premium options.

Therefore, the correct answer correctly describes this relationship: normal goods experience increased demand as income rises, while inferior goods face decreased demand in the same scenario. This demonstrates the nuanced effect that changes in income have on consumer behavior and market demand.