Correct Option: C. Demand increases Detailed Explanation: In economics, goods are categorized into different types based on how their demand responds to changes in consumer income. Normal goods are those for which demand increases as consumer income rises. This relationship is a fundamental concept in microeconomics and can be explained through the following steps:

1. Understanding Normal Goods:
2. Normal goods are products that consumers buy more of when their income increases. Examples include clothing, electronics, and dining out. The key characteristic of normal goods is that they have a positive income elasticity of demand, meaning that as income rises, the quantity demanded also rises.
3. Income Effect:
4. The income effect refers to the change in quantity demanded of a good resulting from a change in consumer income. When consumers have more income, they feel wealthier and are likely to purchase more goods and services, particularly normal goods.
5. Shifts in Demand Curve:
6. In a competitive market, an increase in demand due to higher consumer income is represented graphically by a rightward shift of the demand curve. This shift indicates that at every price level, consumers are willing to buy more of the good than before.
7. Market Dynamics:
8. As demand increases, suppliers may respond by increasing production to meet the new demand levels. This can lead to higher equilibrium prices and quantities in the market, depending on the elasticity of supply.
9. Example:
10. Consider a scenario where consumer income rises due to an economic boom. If the average consumer's income increases from $50,000 to $60,000, they may decide to buy more clothing. If they previously bought 5 shirts a month, they might increase their purchases to 7 shirts a month. This increase in quantity demanded illustrates the concept of normal goods.

Why Other Options Are Incorrect:

• A. Demand decreases:
• This option is incorrect because a decrease in demand would imply that consumers are buying less of the good as their income increases, which contradicts the definition of normal goods. This scenario is more applicable to inferior goods, where demand decreases as income rises.
• B. Demand remains unchanged:
• This option suggests that an increase in income has no effect on the quantity demanded for normal goods. This is incorrect because the fundamental characteristic of normal goods is that demand changes with income. If demand remains unchanged, the good would not be classified as a normal good.
• D. Demand becomes perfectly inelastic:
• Perfectly inelastic demand means that the quantity demanded does not change regardless of price changes. This is not applicable to normal goods in the context of increasing income. Normal goods typically exhibit some elasticity, meaning that demand will respond to changes in income.

Summary of Key Points:

• Normal goods: Demand increases as consumer income rises.
• Income effect: Higher income leads to increased purchasing power and demand for normal goods.
• Demand curve shift: An increase in demand is represented by a rightward shift in the demand curve.
• Incorrect options: A (decrease in demand), B (unchanged demand), and D (perfectly inelastic demand) do not apply to normal goods.

This understanding of how consumer income affects demand for normal goods is crucial for analyzing market behavior and making informed economic decisions.