A normal good is defined by a positive income elasticity of demand, meaning that as consumer income rises, the demand for the good also increases. This is the standard behavior for most goods in an economy. Conversely, inferior goods exhibit a negative income elasticity, where demand falls as income rises. The scenario described clearly fits the definition of a normal good.

The demand curve is determined by consumer-side factors such as income, preferences, and the prices of related goods. Costs of production are a supply-side factor that influences the supply curve, not the demand curve. Similarly, operational factors like bank opening hours do not have a direct impact on the theoretical demand curve for a product. Therefore, these factors are external to the determinants of consumer demand.

In economics, a change in 'quantity demanded' refers specifically to a movement along the demand curve caused by a change in the price of the good itself. Other factors, such as income or the price of related goods, would cause a shift of the entire demand curve. Therefore, an increase in the price of Pepsi is the only factor that explains a change in quantity demanded.

The substitution effect measures how consumers switch away from a good that has become relatively more expensive toward a cheaper substitute. Perfect complements, such as left and right shoes, are consumed in fixed proportions. Because they must be used together, a change in the price of one does not lead the consumer to substitute away from it, resulting in a substitution effect of zero. Other options represent substitutes where the effect is significant.

An interest rate hike creates two opposing forces. The substitution effect makes future consumption cheaper relative to current consumption, encouraging more saving. Conversely, the income effect increases the lifetime wealth of savers, potentially encouraging more current consumption. The net effect on total savings depends on which force dominates; if the substitution effect is stronger, the quantity of savings will increase.

The substitution effect isolates the change in consumption caused solely by the change in relative prices. By holding utility constant (staying on the same indifference curve), we observe how the consumer adjusts their bundle to favor the relatively cheaper good. This is distinct from the income effect, which accounts for the change in purchasing power resulting from the price change.

Income elasticity of demand measures how the quantity demanded of a good changes in response to a change in consumer income. For inferior goods, the income elasticity is negative, meaning that as consumers' income rises, they tend to purchase less of these goods, opting instead for higher-quality substitutes. Examples often include generic store brands or low-cost food items that consumers abandon as their purchasing power increases.

A normal good is defined as a product for which demand increases when consumer income increases and decreases when consumer income decreases. Since the demand for coffee moves in the same direction as income, it is classified as a normal good. This relationship is a fundamental concept in consumer behavior analysis regarding income elasticity of demand.

The provided answer is factually incorrect. If a substitute becomes cheaper, demand for the original good decreases (shifts inward). An outward shift (increase in demand) typically occurs if a substitute becomes more expensive, a complement becomes cheaper, or consumer income rises for a normal good.

An inferior good is defined by a negative income elasticity of demand. As a consumer's purchasing power increases, they tend to shift their consumption away from these goods toward higher-quality alternatives. This behavior is the defining characteristic of an inferior good, distinguishing it from normal goods, which see increased demand as income rises.