Jamal has an initial income of $1040, a final income of $1100 initially consumed 6 cups of coke per week and now consumes 16 cups of coke per week

Question

What is the change in income?

Is this example, is Pepsi a normal or an inferior good.

Answer 1

1. The change in income is just the difference between one time period to the next so initially $1040 then $1100, which is a change of $60.
2. After earning an additional $60, Jamal purchases 10 more Cokes. This means that we know that Coke is a normal good. A normal good is one that demand increases along with income. This is in contrast to an inferior good, which consumer demand falls when income increases. We can not say for certain whether Pepsi a normal good given the information in the question, however since Pepsi is another soda brand, we can assume it is also a normal good. We also know that Pepsi and Coke are substitutes.