1. True of Flase. Please explain. If a good is an inferior good, then an increas
ID: 1142207 • Letter: 1
Question
1. True of Flase. Please explain.
If a good is an inferior good, then an increase in its price will increase the demand for it.
2. In 2000, Bruce spent his income on two goods, x and y. Between 2000 and 2001, the price of good x rose by 8% and the price of good y rose by 8%. In 2001, Bruce bought the same amount of x as he bought in 2000, but he bought more of good y than he had bought in 2000.
a.
y is a normal good.
b.
y is an inferior good.
c.
x is an inferior good.
d.
Nothing can be said about inferiority or superiority, since we don’t know what happened to income.
e.
Bruce is acting irrationally, since the relative prices of x and y did not change.
3. Gladys loves music and spends her money only on tapes and compact discs. She is always willing to trade 2 tapes for 1 compact discs. Originally, music stores sold compact disc for $9 each and tapes for $5 each. Then the price of compact discs fell to $8 each. The change in her consumption of compact discs that resulted was
a.
entirely due to the substitution effect.
b.
entirely due to the income effect.
c.
partly due to the income effect and partly due to the substitution effect.
d.
due to the income effect for low incomes and the substitution effect for high incomes.
e.
There was no change in her demand for compact discs.
a.
y is a normal good.
b.
y is an inferior good.
c.
x is an inferior good.
d.
Nothing can be said about inferiority or superiority, since we don’t know what happened to income.
e.
Bruce is acting irrationally, since the relative prices of x and y did not change.
Explanation / Answer
1. False. For an inferior good, increase in income would reduce demand instead of increasing as people would substitute with higher cost and quality good.
2. Option a. Though the price increase is 8% for both X and Y, Bruce has purchased more of Y indicating that the good Y is a normal good.
3. Option a. Since there is change in price of compact discs bit no change in income the change in consumption is because of substitution effect
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.