Joelle consumes food (X) and clothing (Y). For incomes near her current income, her income expansion path is negatively sloped. Indicate whether the following statement is true or false: "At current income levels, clothing must be an inferior good".

Question

Joelle consumes food (X) and clothing (Y). For incomes near her current income, her income expansion path is negatively sloped. Indicate whether the following statement is true or false:  "At current income levels, clothing must be an inferior good".

BlackTom AI · Accepted Answer

To approach this statement, we first recall what the income expansion path (IEP) represents: it maps how a consumer’s optimal bundle changes as income changes, holding prices constant.
Option 1: True. If the IEP near Joelle’s current income is negatively sloped, that means when income rises a little, Joelle chooses less of clothing (Y) and more of something else (e.g., food X). In standard consumer theory, a good whose quantity demanded falls when income rises over some range is classified as inferior over that range. Therefore, at current income levels, clothing behaves as an inferior good, making the statement true.
Option 2: False. This would assert that the IEP’s negative slope does not imply inferiority, but instead suggests something inconsistent about the data. However, the negative slope directly indicates that, in the local region around the current income, clothing is inferior because higher income leads to reduced consumption of clothing along the IEP. The assertion that it cannot be inferior contradicts the very meaning of a negative income response in the IEP.
A helpful nuance: the conclusion that clothing is inferior applies specifically to the income range in which the IEP is negative. It does not automatically extend to all income levels beyond that neighborhood, but the statement specifies "at current income levels," which aligns with the observed local behavior on the IEP.
In sum, the key idea is that a downward (negative) movement along the IEP with a rise in income signals inferiority for clothing in that local region; thus the statement is supported by the observed economic behavior, and the alternative would be incorrect because it denies this direct implication of the IEP’s slope.

ECON3200001.1251 Quiz 7: Income Effects

Joelle consumes food (X) and clothing (Y). For incomes near her current income, her income expansion path is negatively sloped. Indicate whether the following statement is true or false: "At current income levels, clothing must be an inferior good".

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ECON3200001.1251 Quiz 7: Income Effects

Joelle consumes food (X) and clothing (Y). For incomes near her current income, her income expansion path is negatively sloped. Indicate whether the following statement is true or false: "At current income levels, clothing must be an inferior good".

View Explanation

Log in for full answers

Similar Questions

Suppose Diet Dr. Thunder soda is an inferior good. If the income of consumers increases, how will this affect the demand of Diet Dr. Thunder?

Soup is an inferior good if the demand

Due to a tuition rise, most students at a college find themselves with less disposable income. As a result, most of them eat more frequently at the school cafeteria and less often at restaurants.

Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will________ and the quantity sold of store brand cereal will _______.

Suppose that -holding prices and other exogenous factors constant- an increase in income causes Alyssa's demand for rice to fall. Then,

If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?

If a decrease in income increases the demand for a good, then the good is

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More Practical Tools for Students Powered by AI Study Helper

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Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will__ and the quantity sold of store brand cereal will _.