Question

Last year, Joan bought 50 pounds of hamburger when her household income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. Holding everything else constant, Joan's income elasticity of demand for hamburger is ____ .a) positive, so joan considers hamburger to be an inferior good.b) negative, so joan considers hamburger to be an inferior good.c) negative, so joan considers hamburger to be a normal good.

Answer 1

Answer:

The answer is b) negative, so Joan considers hamburger to be an inferior good.

Explanation:

Le re-visit the concepts of inferior goods and normal goods before we applying them to answer the questions.

* Inferior goods are goods whose demand increases when consumer's incomes declines which is because these goods are considered to be more affordable, yet, more economical than normal goods.

* Normal good offers more values/pleasures than inferior goods. As a result, once consumers incomes increases, demand for normal goods will be increased subsequently.

In the question, Joan income has decreased and her hamburger demand has decreased. This can be interpreted as hamburger is a inferior goods which is cheaper and thus Joan substitutes hamburger for other normal goods ( such as pizza, proper meal at local food stall).

As a result, b is the correct answer.