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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

[Uses the Indifference Curve Approach] With the quantity of popcorn on the vertical axis and the quantity of ice cream on the horizontal axis, draw indifference maps to illustrate each of the following situations. (Hint: Each will look different from the indifference maps in the appendix, because each violates one of the assumptions we made there.) a. Larry's marginal rate of substitution between ice cream and popcorn remains constant, no matter how much of each good he consumes. b. Heather loves ice cream but hates popcorn.

Suppose that 1,000 people in a market each have the same monthly demand curve for bottled water, given by the equation \(Q^{D}=100-25 P,\) where \(P\) is the price for a 12 -ounce bottle in dollars. a. How many bottles would be demanded in the entire market if the price is \(\$ 1 ?\) b. How many bottles would be demanded in the entire market if the price is \(\$ 2 ?\) c. Provide an equation for the market demand curve, showing how the market quantity demanded by all 1,000 consumers depends on the price.

[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 \(M R S_{y, x}>P_{x} / P_{y}\)

The Smiths are a low-income family with \(\$ 10,000\) available annually to spend on food and shelter. Food costs \(\$ 2\) per unit, and shelter costs \(\$ 1\) per square foot per year. The Smiths are currently dividing the \(\$ 10,000\) equally between food and shelter. Use either the Marginal Utility Approach or Indifference Curve Approach. a. Draw their budget constraint on a diagram with food on the vertical axis and shelter on the horizontal axis. Label their current consumption choice. How much do they spend on food? On shelter? b. Suppose the price of shelter rises to \(\$ 2\) per square foot. Draw the new budget line. Can the Smiths continue to consume the same amounts of food and shelter as previously? c. In response to the increased price of shelter, the government makes available a special income supplement. The Smiths receive a cash grant of \(\$ 5,000\) that must be spent on food and shelter. Draw their new budget line and compare it to the line you derived in part \(a\). Could the Smiths consume the same combination of food and shelter as in part \(a\) ? d. With the cash grant and with shelter priced at \(\$ 2\) per square foot, will the family consume the same combination as in part \(a\) ? Why, or why not?

[Uses the Marginal Utility Approach] Now go back to the original assumptions of problem 1 (novels cost \(\$ 8,\) CDs cost \(\$ 6,\) and income is \(\$ 120\) ). Suppose that Parvez is spending \(\$ 120\) monthly on paperback novels and used CDs. For novels, \(M U / P=5 ;\) for CDs, \(M U / P=4 .\) Is he maximizing his utility? If not, should he consume (1) more novels and fewer CDs or (2) more CDs and fewer novels? Explain briefly.
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