Question

In case of normal goods we typically overestimate the DWL if we calculate it from the...

In case of normal goods we typically overestimate the DWL if we calculate it from the uncompensated demand.

True or False? Please explain.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

In case of normal goods, we know that the demand increases when the income level of an individual increases. Therefore this sudden increase in demand will try to shift the market out of equilibrium.

Uncompensated demand is the scenario in which the money income is assumed to be constant. So, when prices increase or decrease, the consumer will try to reduce his welfare loss by varying his demands which can be satisfied within the income. So, the deadweight loss is generally overestimated in this case because the consumer tries his best to reduce his welfare losses thereby deadweight loss, which we are not able to interpret numerically therefore it's not being taken into account.

Hope this helps. Cheers!

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose the utility function for goods ?? and ?? is given by: u(x, y) = x0.5...
Suppose the utility function for goods ?? and ?? is given by: u(x, y) = x0.5 y0.5 a) Explain the difference between compensated (Hicksian) and uncompensated (Marshallian) demand functions. b) Calculate the uncompensated (Marshallian) demand function for ??, and describe how the demand curve for ?? is shifted by changes in income , and by changes in the price of the other good. c) Calculate the total expenditure function for ??.
Supercars such as Ferrari and Lamborghini are not normal goods. Instead, they are luxury goods. True...
Supercars such as Ferrari and Lamborghini are not normal goods. Instead, they are luxury goods. True or False, briefly explain your answer.
As the economy recovers from a recession, we should expect that the: a. ​demand for both...
As the economy recovers from a recession, we should expect that the: a. ​demand for both inferior and normal goods will fall. b. ​demand for inferior goods will fall and the demand for normal goods will rise. c. ​demand for both inferior and normal goods will rise. d. ​demand for inferior goods and normal goods will remain the same. e. ​demand for inferior goods will rise and the demand for normal goods will fall.
When a consumer’s income rises, they will consume more of all goods. True or False? If...
When a consumer’s income rises, they will consume more of all goods. True or False? If capital is fixed there is a certain point where adding more labor is counterproductive true or false ? The firm supply curve shows the profit-maximizing level of output associated with different product prices. True or False? The way we get from individual consumer demand curves to market demand curves is pretty much the same way we get from individual firm supply curves to market...
2. Typically, goods that are in high demand have a high market price. However, some goods...
2. Typically, goods that are in high demand have a high market price. However, some goods that are in high demand during their peak season have lower prices as compared to their out-of-season price. Use your knowledge of supply & demand to explain the lower equilibrium price of cherries sold in the summer (their peak season), as compared to their price during the rest of the year (say, in the winter). Show it graphically and briefly explain. (3 pts.) Hint:...
True or False: If we know the mean and the variance of the normal distribution we...
True or False: If we know the mean and the variance of the normal distribution we know its shape.
In an aggregate production, output per worker typically increases at an increasing rate as more physical...
In an aggregate production, output per worker typically increases at an increasing rate as more physical capital per worker is added to the production process. true or false? Explain In the aggregate demand/aggregate supply model, when the central bank sells treasury bonds to commercial banks, the aggregate demand curve will shift to the left ture? false? pls explain why
The following sector is True or False: a). Goods that we purchase are considered private goods,...
The following sector is True or False: a). Goods that we purchase are considered private goods, which means we can do whatever we want with them within the limits of the law. b). According the readings nonrivalry exist when one person's consumption of a good directly reduces or diminishes another person's opportunity for consumption True or false Former President Theodore Roosevelts comment that you had to be able to do what you can, with what you have, where you are...
#1. Normal cells can survive on ATP from glycolysis very well. True or False? #2. Stage...
#1. Normal cells can survive on ATP from glycolysis very well. True or False? #2. Stage 4 cancer cells are efficient in ATP synthesis from ETC. True or False? Please help and explain. Thank you!
Normal goods are defined as having a positive income elasticity. We can divide normal goods into...
Normal goods are defined as having a positive income elasticity. We can divide normal goods into two types: Those whose income elasticity is less than one and those whose income elasticity is greater than one. Think about products that would fall into each category. Can you come up with a name for each category
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT