A nomadic tribe in Lapland spends all its productive time hunting reindeer. Some of the reindeer meat is kept for consumption and the remainder is sold at a nearby trading station in return for other goods. It is observed that when the price of reindeer meat increases the amount the tribe is willing to supply decreases. (a) Sketch this situation in a diagram, with axes ‘reindeer meat’ and ‘all other goods’. (Hint: locate the production position and sketch the consumption opportunities line before and after the price change). (b) Determine if reindeer meat is an inferior good to the tribe? (Hint: consider what happens to the consumption position). (c) How does the analysis change if the tribe can hunt and trade fish as well as the reindeer? (Hint: now label the axes ‘reindeer meat’ and ‘fish’ and consider both the production and consumption decisions
A nomadic tribe in Lapland spends all its productive time hunting reindeer. Some
of the reindeer meat is kept for consumption and the remainder is sold at a nearby
trading station in return for other goods. It is observed that when the
reindeer meat increases the amount the tribe is willing to supply decreases.
(a) Sketch this situation in a diagram, with axes ‘reindeer meat’ and ‘all other
goods’. (Hint: locate the production position and sketch the consumption
opportunities line before and after the price change).
(b) Determine if reindeer meat is an inferior good to the tribe?
(Hint: consider what happens to the consumption position).
(c) How does the analysis change if the tribe can hunt and trade fish as well as the
reindeer? (Hint: now label the axes ‘reindeer meat’ and ‘fish’ and consider
both the production and consumption decisions
Step by step
Solved in 4 steps with 2 images
