Question

Three years after graduating from​ college, you get a promotion and a 16 percent raise. Your consumption habits change accordingly. ​(For all the calculations below round your answer to two decimal​ places, and enter a​ "-" if your answer is​ negative.) Suppose your consumption of frozen hot dogs has reduced by 8 percent. Your income elasticity of demand is nothing. ​Thus, we can say that a frozen hot dog is ​a(n) ____
(A) normal good
(B) inferior good
(C) luxury good

Answer 1

Answer:

B. Inferior good

Explanation:

In this case, total income increased because of the promotion and a 16 percent raise. Because of this, the consumption of frozen hot dogs decreased. If the demand for a good or service decreases due to an increase in income, then this is an inferior good. This kind of goods are the opposite of normal goods, because the demand for those increase when there is an increase in income.

Answer 2

Answer:

(B) inferior good

Explanation:

The hot dog is an inferior good to the consumer concerned. According to the microeconomic theory, inferior goods are goods whose demand decreases when an increase in consumer income occurs. In this case, the 16% increase in income caused demand for hot dogs to decrease by 8%. This is because, since the hot dog is an inferior good for this consumer, he preferred to replace this food with one of his own.

Plus: If the demand for hot dogs increased along with rising incomes, we would say the hot dog is a normal good.