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Problem 8. Kramer (from Seinfeld) has exhibited the following behavior (a) When Kramers income was S2000 per month, he was consuming 50 oranges. When Kramers income rose to $4000 per month, his demand for oranges fell to 30. Is orange a normal good for Kramer? Explain b) When Kramers was $2000 per month, he was consuming 50 oranges. When the unit price of orange went up by S0.50, Kramers demand for orange went up by 10. Is orange a Giffen good for Kramer? Explain

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Answer #1

a ) Ans: No , Orange is not a normal good for Kramer.

Explanation:

when the demand for a good decreases with an increase in consumer's income then that good is termed as inferior good whereas the demand for a good increases with an increase in consumer's income then that good is termed as normal good. Income elasticity is negative in the case of inferior goods  whereas income elasticity is positive in the case of normal goods.

b) Ans: Yes , orange is a Giffen good for Kramer.

Explanation:

The demand for a good increases as its price increases is called giffen good. In this case , there is a direct relationship between price and quantity demand.

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