Association of Chartered Certified Accountants (ACCA) Certification Practice Test

Normal goods are characterized by which of the following relationships with consumer income?

1. Demand decreases as income increases

2. Demand remains constant regardless of income

3. Demand increases as income increases

4. Demand is unaffected by economic conditions

The correct answer is: Demand increases as income increases

Normal goods are defined by a specific relationship with consumer income, where demand tends to increase as consumer income rises. This phenomenon occurs because normal goods typically fulfill basic needs or preferences, and as individuals or households have more disposable income, they are more likely to purchase greater quantities of these goods or opt for higher-quality variants. For example, if the income of consumers rises, they might buy more clothing, household goods, or other products that they consider normal goods. This positive correlation between income and demand is pivotal in understanding consumer behavior and market dynamics. In contrast, the other options describe scenarios that do not align with the definition of normal goods. The decrease in demand with increasing income pertains to inferior goods, while the idea that demand remains constant or is unaffected by economic conditions is misleading, as consumer buying behavior is often influenced by changes in income and economic climate.