Normal and inferior goods
Solution
Initial budget line is BC1 and new budget line is BC2 (parallel rightward shift from BC1).
(1) Following shift factors are applicable:
- Income increased while prices remained the same
- Prices of both theater and concerts decreased while income remained the same
(2) Plays are inferior good (since higher income has decreased the demand for plays, from 6 to 5)
and concerts are normal goods (since higher income has increased the demand for concerts, from
2 to 5).
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Normal and inferior goodsSolutionInitial budget line is BC1 an.pdf
1. Normal and inferior goods
Solution
Initial budget line is BC1 and new budget line is BC2 (parallel rightward shift from BC1).
(1) Following shift factors are applicable:
- Income increased while prices remained the same
- Prices of both theater and concerts decreased while income remained the same
(2) Plays are inferior good (since higher income has decreased the demand for plays, from 6 to 5)
and concerts are normal goods (since higher income has increased the demand for concerts, from
2 to 5)
