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Inferior goods are those that an individual buys when his or her income level decreases. They are those goods that provide the best alternative when the disposable income of a person declines to such an extent that he or she cannot afford the goods…
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Download file to see previous pages... It is not true that cabbage is cheaply made and is of low quality.
Red wine and beef steak are complimentary goods. The goods complement each other. A complementary good is one whose cross elasticity of demand is negative. That is, the demand of a complementary good will increase if the price of another good decreases. Similarly, the demand of a complementary good falls when the price of another good is increased. As such, because red wine and beef steak are complimentary goods (are consumed together), an increase in the price of red wine will discourage people from buying beef steak and thus a fall in demand for beef steak. Red wine has a negative cross elasticity of demand with respect to beef steak.
The sales of generic frozen orange juice soared during recession because it is an inferior good. Inferior goods are those that provide an alternative for consumers to reducing their expenditure during harsh economic times. The demand for inferior goods soars with a decrease in the level of disposable income. On the other hand, the sales of freshly squeezed orange juice declined because it is a normal good. The demand for normal goods falls with a fall in income level. As such, during 2007/2008 recession, people turned to generic frozen orange juice to cut their expenditure and thus high sales recorded. On the other hand, the number of people buying freshly squeezed orange juice declined as their disposable income fell.
At point A, change in price produces equal change in quantity demanded and hence elastic. At point B, the demand is probably inelastic because a change in price yields less percentage change in quantity demanded.
The firm’s products have elastic demand. For goods with elastic demand, a small change in price will cause a big change in quantity demanded. Therefore, every time the firm increased the price, it ...Download file to see next pagesRead More
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