Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase. Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease. Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase. Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Question

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Answer 1

Question

Chapter 10, Problem 1BCQ

To determine

Concept Introduction:

Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase.

Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease.

Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.

Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Expert Solution & Answer

Explanation of Solution

Example of normal goods:

In the given case, standard happy meal including a quarter cup of slices of apple and excluding caramel sauce is a normal good because its consumption increases with an increase in income.

Example of inferior goods:

In the given case, happy meal with soda as beverage is an inferior good because consumption of such meals decreases with an increase in income.

Substitution effect:

In the given case, due to the substitution effects, if the prices of a happy meal with soda increases, then the demand for standard happy meal will increase. Now, people have incentives to consume more standard happy meal than a happy meal, as the price gap is less.

Income effect:

In the given case, if income of the people increases, then they will prefer standard happy meal than happy meal and hence, McDonald’s would increase its market share.

Conclusion:

Thus, the above examples for normal goods, inferior goods, substitution effect and income effect are stated in the given case.

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11:44 Fri Apr 4 Would+You+Take+the+Bird+in+the+Hand Would You Take the Bird in the Hand, or a 75% Chance at the Two in the Bush? BY VIRGINIA POSTREL WOULD you rather have $1,000 for sure or a 90 percent chance of $5,000? A guaranteed $1,000 or a 75 percent chance of $4,000? In economic theory, questions like these have no right or wrong answers. Even if a gamble is mathematically more valuable a 75 percent chance of $4,000 has an expected value of $3,000, for instance someone may still prefer a sure thing. People have different tastes for risk, just as they have different tastes for ice cream or paint colors. The same is true for waiting: Would you rather have $400 now or $100 every year for 10 years? How about $3,400 this month or $3,800 next month? Different people will answer differently. Economists generally accept those differences without further explanation, while decision researchers tend to focus on average behavior. In decision research, individual differences "are regarded…

Answer 2

Question

Chapter 10, Problem 1BCQ

To determine

Concept Introduction:

Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase.

Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease.

Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.

Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Expert Solution & Answer

Explanation of Solution

Example of normal goods:

In the given case, standard happy meal including a quarter cup of slices of apple and excluding caramel sauce is a normal good because its consumption increases with an increase in income.

Example of inferior goods:

In the given case, happy meal with soda as beverage is an inferior good because consumption of such meals decreases with an increase in income.

Substitution effect:

In the given case, due to the substitution effects, if the prices of a happy meal with soda increases, then the demand for standard happy meal will increase. Now, people have incentives to consume more standard happy meal than a happy meal, as the price gap is less.

Income effect:

In the given case, if income of the people increases, then they will prefer standard happy meal than happy meal and hence, McDonald’s would increase its market share.

Conclusion:

Thus, the above examples for normal goods, inferior goods, substitution effect and income effect are stated in the given case.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 10, Problem 1BCQ

To determine

Concept Introduction:

Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase.

Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease.

Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.

Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Expert Solution & Answer

Explanation of Solution

Example of normal goods:

In the given case, standard happy meal including a quarter cup of slices of apple and excluding caramel sauce is a normal good because its consumption increases with an increase in income.

Example of inferior goods:

In the given case, happy meal with soda as beverage is an inferior good because consumption of such meals decreases with an increase in income.

Substitution effect:

In the given case, due to the substitution effects, if the prices of a happy meal with soda increases, then the demand for standard happy meal will increase. Now, people have incentives to consume more standard happy meal than a happy meal, as the price gap is less.

Income effect:

In the given case, if income of the people increases, then they will prefer standard happy meal than happy meal and hence, McDonald’s would increase its market share.

Conclusion:

Thus, the above examples for normal goods, inferior goods, substitution effect and income effect are stated in the given case.

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Answer 4

Question

Chapter 10, Problem 1BCQ

To determine

Concept Introduction:

Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase.

Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease.

Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.

Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Expert Solution & Answer

Explanation of Solution

Example of normal goods:

In the given case, standard happy meal including a quarter cup of slices of apple and excluding caramel sauce is a normal good because its consumption increases with an increase in income.

Example of inferior goods:

In the given case, happy meal with soda as beverage is an inferior good because consumption of such meals decreases with an increase in income.

Substitution effect:

In the given case, due to the substitution effects, if the prices of a happy meal with soda increases, then the demand for standard happy meal will increase. Now, people have incentives to consume more standard happy meal than a happy meal, as the price gap is less.

Income effect:

In the given case, if income of the people increases, then they will prefer standard happy meal than happy meal and hence, McDonald’s would increase its market share.

Conclusion:

Thus, the above examples for normal goods, inferior goods, substitution effect and income effect are stated in the given case.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 10, Problem 1BCQ

To determine

Concept Introduction:

Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase.

Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease.

Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.

Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Expert Solution & Answer

Explanation of Solution

Example of normal goods:

In the given case, standard happy meal including a quarter cup of slices of apple and excluding caramel sauce is a normal good because its consumption increases with an increase in income.

Example of inferior goods:

In the given case, happy meal with soda as beverage is an inferior good because consumption of such meals decreases with an increase in income.

Substitution effect:

In the given case, due to the substitution effects, if the prices of a happy meal with soda increases, then the demand for standard happy meal will increase. Now, people have incentives to consume more standard happy meal than a happy meal, as the price gap is less.

Income effect:

In the given case, if income of the people increases, then they will prefer standard happy meal than happy meal and hence, McDonald’s would increase its market share.

Conclusion:

Thus, the above examples for normal goods, inferior goods, substitution effect and income effect are stated in the given case.

Answer 6

Chapter 10, Problem 1BCQ

To determine

Concept Introduction:

Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase.

Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease.

Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.

Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Expert Solution & Answer

Explanation of Solution

Example of normal goods:

In the given case, standard happy meal including a quarter cup of slices of apple and excluding caramel sauce is a normal good because its consumption increases with an increase in income.

Example of inferior goods:

In the given case, happy meal with soda as beverage is an inferior good because consumption of such meals decreases with an increase in income.

Substitution effect:

In the given case, due to the substitution effects, if the prices of a happy meal with soda increases, then the demand for standard happy meal will increase. Now, people have incentives to consume more standard happy meal than a happy meal, as the price gap is less.

Income effect:

In the given case, if income of the people increases, then they will prefer standard happy meal than happy meal and hence, McDonald’s would increase its market share.

Conclusion:

Thus, the above examples for normal goods, inferior goods, substitution effect and income effect are stated in the given case.

Answer 7

Chapter 10, Problem 1BCQ

To determine

Concept Introduction:

Normal goods: All those goods whose demand increases with an increase in income is known as normal goods. Take an example of milk, if the income of an individual increases, then its demand will certainly increase.

Inferior goods: All those goods whose demand decrease with an increase in income is known as inferior goods. Take an example of low quality clothes, if the income of an individual increases, then demand for such goods will decrease.

Substitution effects: In this case, the demand of a good increases if the price of its substitute good increases and vice versa. Take an example of tea and coffee, if prices of tea increase, then the demand for coffee will increase.

Income effects: It states that the demand for normal goods and the income are directly related, which means that when the income of a consumer increases, the demand for normal goods will also rise and vice versa.

Answer 8

Expert Solution & Answer

Explanation of Solution

Example of normal goods:

In the given case, standard happy meal including a quarter cup of slices of apple and excluding caramel sauce is a normal good because its consumption increases with an increase in income.

Example of inferior goods:

In the given case, happy meal with soda as beverage is an inferior good because consumption of such meals decreases with an increase in income.

Substitution effect:

In the given case, due to the substitution effects, if the prices of a happy meal with soda increases, then the demand for standard happy meal will increase. Now, people have incentives to consume more standard happy meal than a happy meal, as the price gap is less.

Income effect:

In the given case, if income of the people increases, then they will prefer standard happy meal than happy meal and hence, McDonald’s would increase its market share.

Conclusion:

Thus, the above examples for normal goods, inferior goods, substitution effect and income effect are stated in the given case.