Question

Consider two goods, x and y. With the quantity of Y on the vertical axis and...

Consider two goods, x and y. With the quantity of Y on the vertical axis and the quantity of x on the horizontal axis, a negatively sloped price- consumption curve implies that

A. x and y are inferior goods

B. x and y are normal goods

c. x and y are substitutes in consumption

d. x and y are complements in consumption

Homework Answers

Answer #1

A.) X and Y are inferior goods.

Income effect(price consumption curve) for a good is said to be negative when with the increases in his income, the consumer reduces his consumption of the good. Such goods for which income effect is negative are called Inferior Goods.

The goods whose consumption falls as income of the consumer rises are considered to be some way ‘inferior’ by the consumer and therefore he substitutes superior goods for them when his/ her income rises.

When with the increase in his income, the consumer begins to consume superior goods, the consumption or quantity purchased by him of the inferior goods falls.

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