Mr. Burns buys only lobster and chicken. Lobster is a normal good, while chicken is an inferior good. When the price of lobster rises, Mr. Burns buys

1. less of both goods.

2. more of lobster and less chicken.

3. less lobster and more chicken.

4. less lobster, but the impact on chicken in ambiguous.

Normal goods are those goods whose demand increases with the increase in consumer income. The inferior good is those good whose demand fall with the fall in consumer’s income. The normal goods are expensive than the inferior goods.

The lobster is a normal good, and the chicken is an inferior good; this means that lobster is a little expensive than chicken. When the price of lobster increases, the consumer’s demand falls for lobster (negative substitution effect); however, at the same time, the demand for inferior goods will increase (negative substitution effect and income effect). It is because a higher lobster price decreases the value of the income, or in another way, the relative income falls.

The fall in relative income (real income or purchasing power) encourages the consumer to shift his/her demand to an inferior good, and, thus, the demand for chicken increases.