Question

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that:________.
a. there are many goods that are substitutes for bicycles.
b. there are many goods that are complementary to bicycles.
c. there are few goods that are substitutes for bicycles.
d. bicycles are normal goods.

Answer 1

Answer:

The correct answer is option d.

Explanation:

A normal good can be defined as a good that shows positive income elasticity of demand. In other words, an increase in the income level of the consumer causes the demand to increase and vice versa.  

If an economist expects the demand for bicycles to increase with the increase in the consumer incomes it indicates that bicycles are assumed to be normal goods.  

Normal goods are contrasted to inferior goods that show negative income elasticity of demand.