Question

A good is called normal if a person consumes more of it when her income rises (for example, she might see movies in theaters more often as her income rises). It is called inferior if a person consumes less of it when her income rises (for example, she might be less inclined to buy a used car as her income rises). Sally eats out at the local burger joint quite frequently. The burger joint suddenly lowers its prices.
a. Suppose that, in response to the lower burger prices, Sally goes to the local pizza restaurant less often. Can you tell from this whether or not pizza is an inferior good for Sally?
b. Suppose instead that, in response to the lower burger prices, Sally goes to the burger joint less often. Explain how this could happen in terms of the income and substitution effects by using the concepts of normal and/or inferior goods.


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  • CreatedApril 25, 2015
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