Question

1. Mission brand and Santitas brand tortilla chips are perfect substitutes. Lou has $20. If Mission chips cost $4 and Santitas brand cost $5 what is Lou’s demand for Santitas Chips?

2. Demand for an inferior good is ___________________.

a. Cannot be determined from the information

b. Upward sloping

c. Downward sloping

d. Inelastic

e. Elastic

3.

Is the statement normative or positive?

“Cash transfers are better than food stamps.”

a. Positive

b. Normative

Answer 1

Q1) demand for santitas chips = 0

As two are perfect Substitutes, so only corner solution is possible, only one good will be Consumed

U = M+S

MRS = 1 ,

PM = 4, PS = 5

As MUM/PM > MUS/PS

So Consume only M

M*= 20/4= 5

Q2) option c)

For inferior good, as income rises, demand falls

But as price rises, Quantity Demanded falls,

So demand curve slopes downwards

Q3) option b)

since it is providing a judgement or comparison, so it's normative , not positive