In the recent recession, many workers are finding that their hours are being cut. Thus, for these workers, their income is declining. Suppose that Juan used to buy only name brand products such as Colgate toothpaste, but now Juan buys the store brand. For Juan, is Colgate toothpaste
a. an inferior good
b. a normal good
c. a substitute good
d. luxury good
My answer is "b". Economists look at the behavior of an individual when the individual's income changes. Since Juan bought less Colgate toothpaste when his income went down, the toothpaste is a normal good. A hat tip goes to Mike Cahill for inspiring the question.
The WSJ also has an article here.
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