if the income effect = 8 and substitution effect = 12, is the good a normal/inferior/giffen good? Explain your answers.

Question

Question

Answer 1

Answer #1

For giffen goods income effect is greater than substitution effect.

For inferior goods substitution effect is greater than income effect.

Thus,the good in this case is inferior good.

Answer-Inferior good.

Answer 2

Similar Homework Help Questions

Select all that applies: a. Ordinary goods could be normal or inferior. b. Giffen goods could...

Select all that applies: a. Ordinary goods could be normal or inferior. b. Giffen goods could be ordinary or normal. c. Normal goods must be ordinary. d. Inferior goods must be Giffen. e. If income and substitution effects work in the opposite direction, then the good must be ordinary. f. If income and substitution effects work in the opposite direction, and the substitution effect is stronger, then the good must be Giffen.
Illustrate the Substitution Effect, Income Effect and Total Effect of a normal good and an inferior...

Illustrate the Substitution Effect, Income Effect and Total Effect of a normal good and an inferior good. Clearly label out the changing directions of these effects.
2. Identifying normal, inferior, and Giffen goods The green line BC, on the following graph represents...

2. Identifying normal, inferior, and Giffen goods The green line BC, on the following graph represents your initial budget constraint for good X and good Y, and point A represents the optimal consumption choice, given this choice set. Suppose the price of good X dropped by 50%. The compensated budget is parallel to BC2, representing the same tradeoff between good X and good Y, and it is tangent to the given indifference curve (U) at point B. On the following...

3) Substitution & Income Effects, Normal & Inferior Goods—Discuss with appropriate diagrams. a) What is the...

3) Substitution & Income Effects, Normal & Inferior Goods—Discuss with appropriate diagrams. a) What is the substitution effect? b) What is the income effect? c) Why do substitution and income effects typically reinforce each other when we consider normal goods? d) Is this true for an inferior good?
3. Show whether the good is normal or inferior good, and whether ordinary or Giffen good...

3. Show whether the good is normal or inferior good, and whether ordinary or Giffen good when its demand function is given as follows. (Hint: Think of the formal condition related to each category.) (each 2 points, total 6 points) 1) *= m-3p x = 2+-p 2) 3 3) *= 2p+4m
1. (a) Outline the income and substitution effect of a price rise for an inferior good....

1. (a) Outline the income and substitution effect of a price rise for an inferior good. Under what circumstances will the demand curve slope downwards for an inferior good. Illustrate using a diagram. (b) (c) Bob views apples and oranges as perfect substitutes in his consumption, and MRS 1 for all combinations of the two goods in his indifference map. Suppose the price of apples is $2 per pound, the price of oranges is $3 per pound, and Bob's budget...

What is a Giffen Good? Using budget lines and utility functions, graphically illustrate a Giffen good....

What is a Giffen Good? Using budget lines and utility functions, graphically illustrate a Giffen good. Make sure you correctly identify the income effect and the substitution effect.
What must be true about the relative magnitudes of substitution and income ratios in order to...

What must be true about the relative magnitudes of substitution and income ratios in order to have a normal good? an inferior good? a Giffen good?
. Draw a concept graph to show the substitution effect (SE), income effect (IE), and total...

. Draw a concept graph to show the substitution effect (SE), income effect (IE), and total effect (TE) of an increase in the price of X on the demand for X with X to be an inferior good and Y to be a normal good

Please show work and explain work for both questions for a full rating. Thank you. Question...

Please show work and explain work for both questions for a full rating. Thank you. Question 1 When the price of a good increases, George reduces his quantity demanded by 6 units due to substitution effect and increases his quantity demanded by 2 units due to income effect. For George, therefore, this must be: A. A normal good B. An inferior good C. A Giffen good D. Either a normal good or an inferior good E. None of the above...