(a) To explain: The impact on demand for goods X due to fall in income.

Question

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Answer 1

Question

Chapter 2, Problem 1CACQ

To determine

(a)

To explain:

The impact on demand for goods X due to fall in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goods X.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is decrease in income, it leads to fall in demand. This is because the commodity is normal goods. So, there is a positive relation between demand and income.

In the below diagram, DD is the initial demand curve and P is the price line. As income falls, it leads to leftward shift of demand curve from DD to D1. Quantity falls from Q to Q1.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 1

Figure 1: Decrease in the income of consume shifts demand curve leftwards

Thus, when income of the consumer decreases, the demand of goods X decreases from Q to Q₁ keeping price of goods X fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(b)

To explain:

The impact on demand for goodsY due to increase in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goodsY.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is increase in income, it leads to fall in demand as goods is an inferior goods. So, there is an inverse relation between demand and income, thus decreasing the demand of inferior goods.

In the below diagram, DD is the original demand curve, P is the initial price line. As income of a consumer increases, it leads to leftward shift of demand curve from DD to D1. This is because goods in question is an inferior goods.

Figure 2: Increase in the income of consumer shifts demand curve of Goods Y (Inferior Goods) leftwards

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 2

Thus, when income of the consumer increases, the demand of goods Y decreases from Q to Q₁ keeping price of goods Y fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(c)

To explain:

The impact on demand for goods X due to increase in price of goods Y.

Expert Solution

Answer to Problem 1CACQ

The demand for goods X increases when price of goods Y increases.

Explanation of Solution

It is given that the goods X and goods Y are substitute goods which mean that consumer can use these goods in place of one another. Substitute goods are those goods which are used in place of each other. Price of goods X leads to increase in demand for goods Y.

Goods are substitutable in nature. Demand of a goods is affected when price of related goods changes.

The diagram given below shows the effect of increase in the price of goods Y on the demand of goods X.

Figure 3: Demand curve of goods X shifts rightwards as price its substitute goods (Goods Y) increases.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 3

In Figure-3, DD is the original demand curve, P is the price line. As there is an increase in price of goods Y, it leads to shift in demand curve from DD to D ₁. Therefore, demand for goods X increases when price of goods Y increases.

Economics Concept Introduction

Substitute goods:

Substitute goods are those which can be used in place of each other. These goods have a positive cross elasticity.

Complementary goods:

Complementary goods are those which are used together. These goods have negative cross elasticity.

To determine

(d)

To explain:

Whether goods Y is a lower quality product than goods X.

Expert Solution

Answer to Problem 1CACQ

No, quality of goodsY cannot be determined.

Explanation of Solution

Inferior goods do not mean it is of sub-standard quality. The goods are said to be inferior in nature when the relationship between income of consumer and the demanded quantity of goods is indirect.

As income of consumer rises, it leads to decrease in demand of a commodity, this is because, consumer shifts its demand to a goods which is better than the goods consumed.

As income falls, it leads to increase in consumption of a goods. So, quality of goods Y cannot be determined.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

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Answer 2

Question

Chapter 2, Problem 1CACQ

To determine

(a)

To explain:

The impact on demand for goods X due to fall in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goods X.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is decrease in income, it leads to fall in demand. This is because the commodity is normal goods. So, there is a positive relation between demand and income.

In the below diagram, DD is the initial demand curve and P is the price line. As income falls, it leads to leftward shift of demand curve from DD to D1. Quantity falls from Q to Q1.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 1

Figure 1: Decrease in the income of consume shifts demand curve leftwards

Thus, when income of the consumer decreases, the demand of goods X decreases from Q to Q₁ keeping price of goods X fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(b)

To explain:

The impact on demand for goodsY due to increase in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goodsY.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is increase in income, it leads to fall in demand as goods is an inferior goods. So, there is an inverse relation between demand and income, thus decreasing the demand of inferior goods.

In the below diagram, DD is the original demand curve, P is the initial price line. As income of a consumer increases, it leads to leftward shift of demand curve from DD to D1. This is because goods in question is an inferior goods.

Figure 2: Increase in the income of consumer shifts demand curve of Goods Y (Inferior Goods) leftwards

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 2

Thus, when income of the consumer increases, the demand of goods Y decreases from Q to Q₁ keeping price of goods Y fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(c)

To explain:

The impact on demand for goods X due to increase in price of goods Y.

Expert Solution

Answer to Problem 1CACQ

The demand for goods X increases when price of goods Y increases.

Explanation of Solution

It is given that the goods X and goods Y are substitute goods which mean that consumer can use these goods in place of one another. Substitute goods are those goods which are used in place of each other. Price of goods X leads to increase in demand for goods Y.

Goods are substitutable in nature. Demand of a goods is affected when price of related goods changes.

The diagram given below shows the effect of increase in the price of goods Y on the demand of goods X.

Figure 3: Demand curve of goods X shifts rightwards as price its substitute goods (Goods Y) increases.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 3

In Figure-3, DD is the original demand curve, P is the price line. As there is an increase in price of goods Y, it leads to shift in demand curve from DD to D ₁. Therefore, demand for goods X increases when price of goods Y increases.

Economics Concept Introduction

Substitute goods:

Substitute goods are those which can be used in place of each other. These goods have a positive cross elasticity.

Complementary goods:

Complementary goods are those which are used together. These goods have negative cross elasticity.

To determine

(d)

To explain:

Whether goods Y is a lower quality product than goods X.

Expert Solution

Answer to Problem 1CACQ

No, quality of goodsY cannot be determined.

Explanation of Solution

Inferior goods do not mean it is of sub-standard quality. The goods are said to be inferior in nature when the relationship between income of consumer and the demanded quantity of goods is indirect.

As income of consumer rises, it leads to decrease in demand of a commodity, this is because, consumer shifts its demand to a goods which is better than the goods consumed.

As income falls, it leads to increase in consumption of a goods. So, quality of goods Y cannot be determined.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

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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 2, Problem 1CACQ

To determine

(a)

To explain:

The impact on demand for goods X due to fall in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goods X.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is decrease in income, it leads to fall in demand. This is because the commodity is normal goods. So, there is a positive relation between demand and income.

In the below diagram, DD is the initial demand curve and P is the price line. As income falls, it leads to leftward shift of demand curve from DD to D1. Quantity falls from Q to Q1.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 1

Figure 1: Decrease in the income of consume shifts demand curve leftwards

Thus, when income of the consumer decreases, the demand of goods X decreases from Q to Q₁ keeping price of goods X fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(b)

To explain:

The impact on demand for goodsY due to increase in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goodsY.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is increase in income, it leads to fall in demand as goods is an inferior goods. So, there is an inverse relation between demand and income, thus decreasing the demand of inferior goods.

In the below diagram, DD is the original demand curve, P is the initial price line. As income of a consumer increases, it leads to leftward shift of demand curve from DD to D1. This is because goods in question is an inferior goods.

Figure 2: Increase in the income of consumer shifts demand curve of Goods Y (Inferior Goods) leftwards

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 2

Thus, when income of the consumer increases, the demand of goods Y decreases from Q to Q₁ keeping price of goods Y fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(c)

To explain:

The impact on demand for goods X due to increase in price of goods Y.

Expert Solution

Answer to Problem 1CACQ

The demand for goods X increases when price of goods Y increases.

Explanation of Solution

It is given that the goods X and goods Y are substitute goods which mean that consumer can use these goods in place of one another. Substitute goods are those goods which are used in place of each other. Price of goods X leads to increase in demand for goods Y.

Goods are substitutable in nature. Demand of a goods is affected when price of related goods changes.

The diagram given below shows the effect of increase in the price of goods Y on the demand of goods X.

Figure 3: Demand curve of goods X shifts rightwards as price its substitute goods (Goods Y) increases.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 3

In Figure-3, DD is the original demand curve, P is the price line. As there is an increase in price of goods Y, it leads to shift in demand curve from DD to D ₁. Therefore, demand for goods X increases when price of goods Y increases.

Economics Concept Introduction

Substitute goods:

Substitute goods are those which can be used in place of each other. These goods have a positive cross elasticity.

Complementary goods:

Complementary goods are those which are used together. These goods have negative cross elasticity.

To determine

(d)

To explain:

Whether goods Y is a lower quality product than goods X.

Expert Solution

Answer to Problem 1CACQ

No, quality of goodsY cannot be determined.

Explanation of Solution

Inferior goods do not mean it is of sub-standard quality. The goods are said to be inferior in nature when the relationship between income of consumer and the demanded quantity of goods is indirect.

As income of consumer rises, it leads to decrease in demand of a commodity, this is because, consumer shifts its demand to a goods which is better than the goods consumed.

As income falls, it leads to increase in consumption of a goods. So, quality of goods Y cannot be determined.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Want to see more full solutions like this?

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

Answer 4

Question

Chapter 2, Problem 1CACQ

To determine

(a)

To explain:

The impact on demand for goods X due to fall in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goods X.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is decrease in income, it leads to fall in demand. This is because the commodity is normal goods. So, there is a positive relation between demand and income.

In the below diagram, DD is the initial demand curve and P is the price line. As income falls, it leads to leftward shift of demand curve from DD to D1. Quantity falls from Q to Q1.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 1

Figure 1: Decrease in the income of consume shifts demand curve leftwards

Thus, when income of the consumer decreases, the demand of goods X decreases from Q to Q₁ keeping price of goods X fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(b)

To explain:

The impact on demand for goodsY due to increase in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goodsY.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is increase in income, it leads to fall in demand as goods is an inferior goods. So, there is an inverse relation between demand and income, thus decreasing the demand of inferior goods.

In the below diagram, DD is the original demand curve, P is the initial price line. As income of a consumer increases, it leads to leftward shift of demand curve from DD to D1. This is because goods in question is an inferior goods.

Figure 2: Increase in the income of consumer shifts demand curve of Goods Y (Inferior Goods) leftwards

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 2

Thus, when income of the consumer increases, the demand of goods Y decreases from Q to Q₁ keeping price of goods Y fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(c)

To explain:

The impact on demand for goods X due to increase in price of goods Y.

Expert Solution

Answer to Problem 1CACQ

The demand for goods X increases when price of goods Y increases.

Explanation of Solution

It is given that the goods X and goods Y are substitute goods which mean that consumer can use these goods in place of one another. Substitute goods are those goods which are used in place of each other. Price of goods X leads to increase in demand for goods Y.

Goods are substitutable in nature. Demand of a goods is affected when price of related goods changes.

The diagram given below shows the effect of increase in the price of goods Y on the demand of goods X.

Figure 3: Demand curve of goods X shifts rightwards as price its substitute goods (Goods Y) increases.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 3

In Figure-3, DD is the original demand curve, P is the price line. As there is an increase in price of goods Y, it leads to shift in demand curve from DD to D ₁. Therefore, demand for goods X increases when price of goods Y increases.

Economics Concept Introduction

Substitute goods:

Substitute goods are those which can be used in place of each other. These goods have a positive cross elasticity.

Complementary goods:

Complementary goods are those which are used together. These goods have negative cross elasticity.

To determine

(d)

To explain:

Whether goods Y is a lower quality product than goods X.

Expert Solution

Answer to Problem 1CACQ

No, quality of goodsY cannot be determined.

Explanation of Solution

Inferior goods do not mean it is of sub-standard quality. The goods are said to be inferior in nature when the relationship between income of consumer and the demanded quantity of goods is indirect.

As income of consumer rises, it leads to decrease in demand of a commodity, this is because, consumer shifts its demand to a goods which is better than the goods consumed.

As income falls, it leads to increase in consumption of a goods. So, quality of goods Y cannot be determined.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Want to see more full solutions like this?

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

Answer 5

Chapter 2, Problem 1CACQ

To determine

(a)

To explain:

The impact on demand for goods X due to fall in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goods X.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is decrease in income, it leads to fall in demand. This is because the commodity is normal goods. So, there is a positive relation between demand and income.

In the below diagram, DD is the initial demand curve and P is the price line. As income falls, it leads to leftward shift of demand curve from DD to D1. Quantity falls from Q to Q1.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 1

Figure 1: Decrease in the income of consume shifts demand curve leftwards

Thus, when income of the consumer decreases, the demand of goods X decreases from Q to Q₁ keeping price of goods X fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(b)

To explain:

The impact on demand for goodsY due to increase in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goodsY.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is increase in income, it leads to fall in demand as goods is an inferior goods. So, there is an inverse relation between demand and income, thus decreasing the demand of inferior goods.

In the below diagram, DD is the original demand curve, P is the initial price line. As income of a consumer increases, it leads to leftward shift of demand curve from DD to D1. This is because goods in question is an inferior goods.

Figure 2: Increase in the income of consumer shifts demand curve of Goods Y (Inferior Goods) leftwards

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 2

Thus, when income of the consumer increases, the demand of goods Y decreases from Q to Q₁ keeping price of goods Y fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

To determine

(c)

To explain:

The impact on demand for goods X due to increase in price of goods Y.

Expert Solution

Answer to Problem 1CACQ

The demand for goods X increases when price of goods Y increases.

Explanation of Solution

It is given that the goods X and goods Y are substitute goods which mean that consumer can use these goods in place of one another. Substitute goods are those goods which are used in place of each other. Price of goods X leads to increase in demand for goods Y.

Goods are substitutable in nature. Demand of a goods is affected when price of related goods changes.

The diagram given below shows the effect of increase in the price of goods Y on the demand of goods X.

Figure 3: Demand curve of goods X shifts rightwards as price its substitute goods (Goods Y) increases.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 3

In Figure-3, DD is the original demand curve, P is the price line. As there is an increase in price of goods Y, it leads to shift in demand curve from DD to D ₁. Therefore, demand for goods X increases when price of goods Y increases.

Economics Concept Introduction

Substitute goods:

Substitute goods are those which can be used in place of each other. These goods have a positive cross elasticity.

Complementary goods:

Complementary goods are those which are used together. These goods have negative cross elasticity.

To determine

(d)

To explain:

Whether goods Y is a lower quality product than goods X.

Expert Solution

Answer to Problem 1CACQ

No, quality of goodsY cannot be determined.

Explanation of Solution

Inferior goods do not mean it is of sub-standard quality. The goods are said to be inferior in nature when the relationship between income of consumer and the demanded quantity of goods is indirect.

As income of consumer rises, it leads to decrease in demand of a commodity, this is because, consumer shifts its demand to a goods which is better than the goods consumed.

As income falls, it leads to increase in consumption of a goods. So, quality of goods Y cannot be determined.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Answer 6

Chapter 2, Problem 1CACQ

To determine

(a)

To explain:

The impact on demand for goods X due to fall in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goods X.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is decrease in income, it leads to fall in demand. This is because the commodity is normal goods. So, there is a positive relation between demand and income.

In the below diagram, DD is the initial demand curve and P is the price line. As income falls, it leads to leftward shift of demand curve from DD to D1. Quantity falls from Q to Q1.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 1

Figure 1: Decrease in the income of consume shifts demand curve leftwards

Thus, when income of the consumer decreases, the demand of goods X decreases from Q to Q₁ keeping price of goods X fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Answer 7

Chapter 2, Problem 1CACQ

To determine

(a)

To explain:

The impact on demand for goods X due to fall in income.

Answer 8

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goods X.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is decrease in income, it leads to fall in demand. This is because the commodity is normal goods. So, there is a positive relation between demand and income.

In the below diagram, DD is the initial demand curve and P is the price line. As income falls, it leads to leftward shift of demand curve from DD to D1. Quantity falls from Q to Q1.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 1

Figure 1: Decrease in the income of consume shifts demand curve leftwards

Thus, when income of the consumer decreases, the demand of goods X decreases from Q to Q₁ keeping price of goods X fixed.

Answer 13

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Answer 14

To determine

(b)

To explain:

The impact on demand for goodsY due to increase in income.

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goodsY.

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is increase in income, it leads to fall in demand as goods is an inferior goods. So, there is an inverse relation between demand and income, thus decreasing the demand of inferior goods.

In the below diagram, DD is the original demand curve, P is the initial price line. As income of a consumer increases, it leads to leftward shift of demand curve from DD to D1. This is because goods in question is an inferior goods.

Figure 2: Increase in the income of consumer shifts demand curve of Goods Y (Inferior Goods) leftwards

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 2

Thus, when income of the consumer increases, the demand of goods Y decreases from Q to Q₁ keeping price of goods Y fixed.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Answer 15

To determine

(b)

To explain:

The impact on demand for goodsY due to increase in income.

Answer 16

Expert Solution

Answer to Problem 1CACQ

There will be fall in demand of goodsY.

Answer 17

Expert Solution

Answer 18

Expert Solution

Answer 19

Expert Solution

Answer 20

Explanation of Solution

There is a leftward shift in demand curve. This is because when there is increase in income, it leads to fall in demand as goods is an inferior goods. So, there is an inverse relation between demand and income, thus decreasing the demand of inferior goods.

In the below diagram, DD is the original demand curve, P is the initial price line. As income of a consumer increases, it leads to leftward shift of demand curve from DD to D1. This is because goods in question is an inferior goods.

Figure 2: Increase in the income of consumer shifts demand curve of Goods Y (Inferior Goods) leftwards

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 2

Thus, when income of the consumer increases, the demand of goods Y decreases from Q to Q₁ keeping price of goods Y fixed.

Answer 21

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Answer 22

To determine

(c)

To explain:

The impact on demand for goods X due to increase in price of goods Y.

Expert Solution

Answer to Problem 1CACQ

The demand for goods X increases when price of goods Y increases.

Explanation of Solution

It is given that the goods X and goods Y are substitute goods which mean that consumer can use these goods in place of one another. Substitute goods are those goods which are used in place of each other. Price of goods X leads to increase in demand for goods Y.

Goods are substitutable in nature. Demand of a goods is affected when price of related goods changes.

The diagram given below shows the effect of increase in the price of goods Y on the demand of goods X.

Figure 3: Demand curve of goods X shifts rightwards as price its substitute goods (Goods Y) increases.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 3

In Figure-3, DD is the original demand curve, P is the price line. As there is an increase in price of goods Y, it leads to shift in demand curve from DD to D ₁. Therefore, demand for goods X increases when price of goods Y increases.

Economics Concept Introduction

Substitute goods:

Substitute goods are those which can be used in place of each other. These goods have a positive cross elasticity.

Complementary goods:

Complementary goods are those which are used together. These goods have negative cross elasticity.

Answer 23

To determine

(c)

To explain:

The impact on demand for goods X due to increase in price of goods Y.

Answer 24

Expert Solution

Answer to Problem 1CACQ

The demand for goods X increases when price of goods Y increases.

Answer 25

Expert Solution

Answer 26

Expert Solution

Answer 27

Expert Solution

Answer 28

Explanation of Solution

It is given that the goods X and goods Y are substitute goods which mean that consumer can use these goods in place of one another. Substitute goods are those goods which are used in place of each other. Price of goods X leads to increase in demand for goods Y.

Goods are substitutable in nature. Demand of a goods is affected when price of related goods changes.

The diagram given below shows the effect of increase in the price of goods Y on the demand of goods X.

Figure 3: Demand curve of goods X shifts rightwards as price its substitute goods (Goods Y) increases.

EBK MANAGERIAL ECONOMICS & BUSINESS STR, Chapter 2, Problem 1CACQ , additional homework tip 3

In Figure-3, DD is the original demand curve, P is the price line. As there is an increase in price of goods Y, it leads to shift in demand curve from DD to D ₁. Therefore, demand for goods X increases when price of goods Y increases.

Answer 29

Economics Concept Introduction

Substitute goods:

Substitute goods are those which can be used in place of each other. These goods have a positive cross elasticity.

Complementary goods:

Complementary goods are those which are used together. These goods have negative cross elasticity.

Answer 30

To determine

(d)

To explain:

Whether goods Y is a lower quality product than goods X.

Expert Solution

Answer to Problem 1CACQ

No, quality of goodsY cannot be determined.

Explanation of Solution

Inferior goods do not mean it is of sub-standard quality. The goods are said to be inferior in nature when the relationship between income of consumer and the demanded quantity of goods is indirect.

As income of consumer rises, it leads to decrease in demand of a commodity, this is because, consumer shifts its demand to a goods which is better than the goods consumed.

As income falls, it leads to increase in consumption of a goods. So, quality of goods Y cannot be determined.

Economics Concept Introduction

Normal Goods:

The goods are said to be a normal goods when there is a positive relation between income and demand of a commodity.

Inferior goods:

The goods are said to be inferior goods when there is an inverse relation between income and demand of a commodity.

Answer 31

To determine

(d)

To explain:

Whether goods Y is a lower quality product than goods X.

Answer 32

Expert Solution

Answer to Problem 1CACQ

No, quality of goodsY cannot be determined.

Answer 33

Expert Solution

Answer 34

Expert Solution

Answer 35

Expert Solution

Answer 36

Explanation of Solution

Inferior goods do not mean it is of sub-standard quality. The goods are said to be inferior in nature when the relationship between income of consumer and the demanded quantity of goods is indirect.

As income of consumer rises, it leads to decrease in demand of a commodity, this is because, consumer shifts its demand to a goods which is better than the goods consumed.

As income falls, it leads to increase in consumption of a goods. So, quality of goods Y cannot be determined.