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Chapter 6: Problem 6

What would happen to the market demand curve for polyester suits, an inferior good, if consumers' incomes rose?

Short Answer

Expert verified
With an increase in consumers' income, the market demand curve for polyester suits, an inferior good, would shift to the left, indicating a decrease in demand for the product.

Step by step solution

01

Define Inferior Good

An inferior good is a type of good where demand decreases as consumer income increases. This is an inverse relationship. When income rises, consumers tend to shift their demand towards more expensive, high-quality goods, thus decreasing the demand for inferior goods.
02

Consider income increase

In this situation, consumers' incomes have risen. Consequently, according to the definition of an inferior good, the market demand for these goods (in this case, polyester suits) should decrease.
03

Predict Market Demand Curve Shift

Since the demand for the polyester suits drops with an increase in income, the market demand curve for these suits will shift to the left. This shift to the left represents a decrease in demand.

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Most popular questions from this chapter

Which of the following descriptions of consumer behavior violates the assumption of rational preferences? Explain briefly. a. Joseph is confused: He doesn't know whether he'd prefer to take a job now or go to college full-time. b. Brenda likes mustard on her pasta, in spite of the fact that pasta is not meant to be eaten with mustard. c. Brewster says, "I'd rather see an action movie than a romantic comedy, and I'd rather see a romantic comedy than a foreign film. But given the choice, I think I'd rather see a foreign film than an action movie."

When an economy is experiencing inflation, the prices of most goods and services are rising but at different rates. Imagine a simpler inflationary situation in which all prices, and all wages and incomes, are rising at the same rate, say 5 percent per year. What would happen to consumer choices in such a situation? (Hint: Think about what would happen to the budget line.)

[Uses the Indifference Curve Approach \(]\) The appendix to this chapter states that when a consumer is buying the optimal combination of two goods \(x\) and \(y,\) then \(M R S_{y, x}=P_{x} / P_{y^{*}}\) Draw a graph, with an indifference curve and a budget line, and with the quantity of \(y\) on the vertical axis, to illustrate the case where the consumer is buying a combination on his budget line for which \(M R S_{x x}>P_{x} / P_{y}\).

[Uses the Indifference Curve Approach] a. Draw a budget line for Rafaella, who has a weekly income of \(\$ 30 .\) Assume that she buys chicken and eggs, and that chicken costs \(\$ 5\) per pound while eggs cost \(\$ 1\) each. Add an indifference curve for Rafaella that is tangent to her budget line at the combination of 4 pounds of chicken and 10 eggs. b. Draw a new budget line for Rafaella, if the price of chicken falls to \(\$ 3\) per pound. Assume that Rafaella views chicken and eggs as substitutes. What will happen to her chicken consumption? What will happen to her egg consumption?

Larsen E. Pulp, head of Pulp Fiction Publishing Co., just got some bad news: The price of paper, the company's most important input, has increased. a. On a supply/demand diagram, show what will happen to the price of Pulp's output (novels). b. Explain the resulting substitution and income effects for a typical Pulp customer. For each effect, will the customer's quantity demanded increase or decrease? Be sure to state any assumptions you are making.
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