Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is a normal good?

1. A good for which demand falls as income rises

2. A good that is always in high demand

3. A good for which demand rises as income rises

4. A good that has no substitutes

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

A normal good is defined as a type of good for which demand increases as consumer income rises. This relationship occurs because, as individuals have more disposable income, they are more likely to purchase more of these goods. This characteristic is underpinned by consumer behavior and preferences, where higher income allows for expanded consumption, particularly of goods that are considered desirable or necessary. In contrast, when examining other options, it's key to note that a good for which demand falls as income rises, would typically be classified as an inferior good. A good that is always in high demand does not necessarily align with the economic principles defining normal goods, as demand can fluctuate based on numerous factors beyond just income. Lastly, while the presence or absence of substitutes can influence demand characteristics, it does not determine whether a good is classified as normal. Thus, the correct understanding is that normal goods are characterized by an increase in demand in response to increases in income, aligning perfectly with the chosen answer.