Question 6 (i)(a)
Can both of two goods be inferior?
3 marks
- Time to write
- About 6 minutes
Question
Question 6 (i)(a) · 3 marks- Arjun consumes only cheese and crackers.
- Is it possible for both cheese and crackers to be inferior goods for Arjun? Explain.
Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- (i)–(a)2 items, each marked on its own: give each its share.
- ExplainA statement to explain: say what it means first, then build the answer around it.
Write it in this order
- 1 Verdict, with the reason 1 mark 2 min
- 2 Reasoning from the budget line when income rises 1½ marks 3 min
- 3 Assumptions stated two goods only, all income spent, prices fixed ½ mark 1 min
Short on time? Step 2 carries 1½ of the 3 marks: guard its minutes.
Try it first. About 6 minutes for 3 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Short answer. No. When Arjun buys only two goods, cheese and crackers, they cannot both be inferior goods for him over the same range of income. At least one of them must be a normal good.
The terms. A good is normal when the quantity the consumer buys rises as income rises (prices and tastes unchanged), and inferior when that quantity falls as income rises.
- A consumer whose preferences are monotonic (more is preferred to less) chooses a bundle on the budget line, not below it. So Arjun spends his whole income: (price of cheese x cheese) + (price of crackers x crackers) = income.
- Suppose his income rises while both prices stay the same. To stay on the new, higher budget line, his total spending must rise by the full increase in income.
- If both goods were inferior, he would buy less cheese and fewer crackers at the higher income. His spending would then fall, while his income has risen. He would be at a point inside the new budget line, which a consumer with monotonic preferences never chooses.
- So the quantity of at least one good must rise with income: at least one of the two must be normal.
Assumptions the result needs. (i) Arjun buys only these two goods; (ii) he spends all his income (monotonic preferences, nothing saved); (iii) the prices of cheese and crackers do not change when his income changes. With three or more goods, two goods can both be inferior, because a third good can absorb the extra spending; but not every good can be inferior.
Conclusion. Both goods cannot be inferior for Arjun. One of them may be inferior (for example crackers, if he switches to cheese as he grows richer), but then the other has to be normal.
Where the 3 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Verdict: both cannot be inferior | 1 |
| 2 | Reasoning from the budget line when income rises | 1.5 |
| 3 | Assumptions stated (two goods only, all income spent, prices fixed) | 0.5 |
| Total | 3 |
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