A consumer, Charlie, consumes only two goods: apples and bananas. Let A and B denote the quantity of apples and bananas, respectively; and pA and pB, the price of A and B. Charlies preference can be represented by nice indifference curves which are bowed inward and he always spends all of his $20 income. If he consumes (A, B) = (5, 5) when (pA, pB) = (2, 2) and (A, B) = (5, 7.5) when (pA, pB ) = (1, 2), then is apple a normal good or an inferior good for him? What about bananas? (Justify your answer using the income and substitution effect analysis mentioned in class.)

A consumer, Charlie, consumes only two goods: apples and bananas. Let A and B denote the quantity of apples and bananas, respectively; and pA and pB, the price of A and B. Charlies preference can be represented by nice indifference curves which are bowed inward and he always spends all of his $20 income. If he consumes (A, B) = (5, 5) when (pA, pB) = (2, 2) and (A, B) = (5, 7.5) when (pA, pB ) = (1, 2), then is apple a normal good or an inferior good for him? What about bananas? (Justify your answer using the income and substitution effect analysis mentioned in class.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A consumer, Charlie, consumes only two goods: apples and bananas. Let A and B denote the quantity of
apples and bananas, respectively; and pA and pB, the price of A and B. Charlies preference can be
represented by nice indifference curves which are bowed inward and he always spends all of his $20
income. If he consumes (A, B) = (5, 5) when (pA, pB) = (2, 2) and (A, B) = (5,7.5) when (pA, pB
) = (1,2), then is apple a normal good or an inferior good for him? What about bananas? (Justify your
answer using the income and substitution effect analysis mentioned in class.)

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