Question

True, false or uncertain:

(a) In a two-good world, at least one good must be a normal good

(b) Simultaneous increases in the first-class postage rate from 20 to 30 cents and the overnight delivery rate from $1.00 to $1.10 will leave unaltered the proportion in which the two types of mail are consumed.

Feel free to include graphs or equations in the answer

Answer 1

A.TRUE

Reason: With two goods at least one is a normal good -they can't be inferior goods because otherwise, when income rises, less of both would be purchased.

An example of an inferior good is backward bending -inferior good. Here, as income rises the consumption of X rises. reaches a maximum and then begins to decline.In the declining portion,X is is an inferior.

B. TRUE

Reason: The proportion in which the two types of mails are consumed will be unaltered because increase in the postage rate and the overnight delivery rate is same that is 10% so the proportion will be same.

The increase in postage rates 20-30 percent it means there is 10% increase,on the other hand the overnight delivery rate is increased from $1 to $1.10 the increase would be 10% ,so overall there will be no change in proportion of consumption of these two types of mails.