Asked by Adeel Humayun on May 14, 2024
Verified
Assume that a college student purchases only Ramen noodles and textbooks. If Ramen noodles are an inferior good and textbooks are a normal good, then the income effect associated with an increase in the price of a textbook will result in
A) a decrease in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
B) a decrease in the consumption of textbooks and an increase in the consumption of Ramen noodles.
C) an increase in the consumption of textbooks and an increase in the consumption of Ramen noodles.
D) an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.
Income Effect
The effect of changes in either individual or economic income on the demand levels for goods or services.
Inferior Good
A type of good whose demand decreases as consumer income rises, meaning it is often replaced by more desirable goods as financial circumstances improve.
Normal Good
A type of good for which demand increases as the income of individuals rises, holding all other factors constant.
- Acquire knowledge on the notions of normal goods, inferior goods, and Giffen goods.
- Learn about the effects of income and substitution on consumer decisions.
- Segregate the income effect from the substitution effect in distinct economic circumstances.
Verified Answer
Learning Objectives
- Acquire knowledge on the notions of normal goods, inferior goods, and Giffen goods.
- Learn about the effects of income and substitution on consumer decisions.
- Segregate the income effect from the substitution effect in distinct economic circumstances.
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