Income Effect and Price Elasticity on Quantity Demanded

Steps:

• Income increase shifts demand curve right for normal goods (positive income elasticity) and left for inferior goods (negative income elasticity).
• Rightward shift raises equilibrium quantity; leftward shift lowers it.
• Price elasticity affects the shift's impact: elastic demand (flat curve) leads to smaller price rise and larger quantity gain; inelastic (steep) leads to larger price rise and smaller quantity gain.
• Thus, normal good with elastic demand maximizes quantity increase.

Why C is correct:

• For normal goods, income elasticity of demand is positive, shifting demand right; price elasticity >1 means flatter curve, so equilibrium quantity rises most per law of demand and supply intersection.

Why the others are wrong:

• A: Inferior good shifts demand left, decreasing quantity regardless of price elasticity.
• B: Inferior good shifts demand left, decreasing quantity despite inelasticity.
• D: Normal good shifts demand right but inelasticity causes larger price rise, limiting quantity increase.

Final answer: C