Question 1 Joe consumes 10 units of food and 12 units of clothing. Since food is...
Question 1
-
Joe consumes 10 units of food and 12 units of clothing. Since food is an inferior good, a gift to Joe of a $12 gift certificate at a clothing store will:
induce Joe to eat more than 10 units of food.
definitely make Joe better off than a gift of $12 in cash.
definitely make Joe worse off than a gift of $12 in cash.
None of the statements is correct.
Homework Answers
Answer
Option 1
induce Joe to eat more than 10 units of food
Joe is spending his income on tow goods but the gift increases the portion on the cloths and an optimum utility is where marginal utility per dollar from both goods should be equal and many of one good decreases the utility so Joe induced to increase spending on food from the original income and take most of the cloths from the gift.
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Question 1
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B. Sarah’s income elasticity of demand is equal to zero because her
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