Subway has increased the price of good A from $7 to $8. As a result, their sales for good B have decreased. This implies that good A and B are: O Inferior Goods O Normal Goods O Substitutes O Complements O None of the above

Subway has increased the price of good A from $7 to $8. As a result, their sales for good B have decreased. This implies that good A and B are: O Inferior Goods O Normal Goods O Substitutes O Complements O None of the above

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

Subway has increased the price of good A from $7 to $8. As a result, their sales for good B have decreased. This implies that good A and B are:
O Inferior Goods
O Normal Goods
O Substitutes
O Complements
O None of the above

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Answer
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1. Say that there are two goods in the world, books and video games. Say that we observed two of Jim's choices: he chooses bundle A from the budget set bounded by budget line 1, and the bundle B from the budget set bounded by budget line 2. video games B A budget line 2 budget line 1 books a) For each of the two goods, based on the diagram: is the good normal, inferior, or we can't say for sure? Is the good ordinary, Giffen, or we can't say for sure? Explain. b) For which of the two budget lines is the opportunity cost of a book higher and why? What does that statement mean in the context of this model?
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