Economist George Stigler once wrote that, according to consumer theory, “if cons

Question

Economist George Stigler once wrote that, according to consumer theory, “if consumers do not buy less of a commodity when their incomes rise, they will surely buy less when the price of the commodity rises.”

5. Problems and Applications Q11 Economist George Stigler once wrote that, according to consumer theory, "if consumers do not buy less of a commodity when their incomes rise, they will surely buy less when the price of the commodity rises." What kind of commodity was Stigler referring to? OAn inferior good A normal good When the price of this commodity rises, the substitution effect is and the income effect is So the net result for consumption of this commodit

Explanation / Answer

B..)) A Normal good

If consumers don't buy less of a good when income rises then it is a normal good.for a normal good,both the income and substitution effects both imply that the consumer will buy less if prices increases.

When the price of the commodity rises,the substitution effect is negative and the income effect is negative so that the result for the consumption for the commodity decreases.

When a price of a good increases,this encourages the customer to substitute away from the commodity and towards the consumption of other goods and this leads to negative substitution effect and moreover purchasing power decreases and this leads to negative income effect and this overall decreases the consumption of the normal good.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.