Economic theory holds that the demand for different goods and services respond in dissimilar fashion to changes in consumers' incomes. Inferior goods are those that consumers purchase only because they cannot afford better commodities. Examples include poor cuts of meat, substandard clothing, cheap forms of transportation

(buses as opposed to luxury cars), and other less desirable purchases.

Normal (or superior) goods are those that consumers want to buy more of as their incomes go up. Data are provided here for the incomes of several consumers and their respective purchases of two commodities, Q1 and Q2.

a. Use two regression models to determine which might be classified as an inferior good and which as the normal good based on changes in incomes. Be careful in determining which variable is the dependent variable.

b. Calculate and interpret the correlation coefficients between Income and Q1 and between Income and Q2. Do they substantiate your conclusion from part A?

c. Graph the functions placing the dependent variable on the vertical axis. What can you conclude from these graphs and do they support your contention regarding which good is inferior?

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Income 1.2 1.3 2.5 3.6 2.5 3.5 1.9 2.8 3.5 Q1 3 3.1 4.9 6.6 4.9 6.1 4.1 5.4 6.4 02 5.8 5.1 4.5 4.3 5.2 4.7 5.3 5.1 4.7