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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Students have asked these similar questions

As indicated in the attached image, U.S. earnings for high- and low-skill workers as measured by educational attainment began diverging in the 1980s. The remaining questions in this problem set use the model for the labor market developed in class to walk through potential explanations for this trend. 1. Assume that there are just two types of workers, low- and high-skill. As a result, there are two labor markets: supply and demand for low-skill workers and supply and demand for high-skill workers. Using two carefully drawn labor-market figures, show that an increase in the demand for high skill workers can explain an increase in the relative wage of high-skill workers. 2. Using the same assumptions as in the previous question, use two carefully drawn labor-market figures to show that an increase in the supply of low-skill workers can explain an increase in the relative wage of high-skill workers.

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The following diagram illustrates the demand and marginal revenue curves facing a monopoly in an industry with no economies or diseconomies of scale. In the short and long run, MC = ATC. a. Calculate the values of profit, consumer surplus, and deadweight loss, and illustrate these on the graph. b. Repeat the calculations in part a, but now assume the monopoly is able to practice perfect price discrimination.

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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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.