Question

Salvo and Huse (2013) found that roughly one-fifth of owners of flexible-fuel cars (which can run on a mix of ethanol and gasoline) choose gasoline when the price of gas is 20% above that of ethanol (in energy-adjusted terms) and, similarly, one-fifth choose ethanol when ethanol is 20% more expensive than gasoline. What can you say about these people's tastes?

Answer 1

Here it is a matter of normal goods and inferior goods because in the case of normal goods when the income of a consumer increases then consumer always prefer to purchase normal goods whether right increases or not because normal goods are directly related with the income of the consumer and in a case of inferior goods when income increases then the demand of inferior goods decreases in the economy because there is an inverse relationship between income of the consumer and the inferior goods and on the other hand there is a direct relationship between the income of the consumer and the the demand of normal goods therefore when a consumer is prefer to buy gasoline when the rate of gasoline is high then it means the gasoline is a normal wood and comparison to the ethanol therefore the rise in income shows the rise in the normal goods on the other hand when people prefer the ethanol over the gasoline it means the ethanol is referred as the normal goods in comparison to the gasoline it is basically a concept based on income relationship with the goods.