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

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We start by restating the scenario in our own words: with prices and other exogenous factors held constant, an increase in Alyssa's income leads to a decrease in her quantity demanded of rice. Now we examine the given option.
Option: 'Rice is an inferior good to Alyssa.'
- The key idea behind an inferior good is that demand for the good decreases as income rises. This is characterized by a negative income elasticity of demand. Since the scenario describes exactly a fall in quantity demanded when income rises, this aligns with the definition of an inferior good for Alyssa. In other words, Alyssa substitutes away from rice toward other goods as she becomes richer, which is consistent with the concept of inferiority of rice for her.
- It is important to distinguish this from normal goods. For normal goods, higher income would usually lead to higher demand, all else equal. The given statement implies the opposite for Alyssa, so it cannot be a normal good in this context.
- Another subtle point is that the change described is a movement along or a shift in the demand curve? An income change typically shifts the demand curve itself (a new demand schedule), not a movement along a fixed-demand schedule. Since we are told that demand (not quantity demanded at a fixed price) falls when income rises, this supports a shift to the left of the demand curve for rice for Alyssa.
- One potential confusion could be that rice is a staple for many households and might sometimes be demanded out of necessity; however, the mathematical relationship specified—income rise causing demand to fall—overrides general assumptions and classifies rice as inferior for Alyssa in this scenario.
- The statement does not require broader market-wide conclusions. It speaks to Alyssa's individual demand behavior given her income change, which is precisely the definition used to categorize goods as inferior for a specific consumer.
- In summary, the logic follows the standard economic rule: if an income increase reduces quantity demanded, the good is considered inferior for that consumer. Hence, the option is internally consistent with the described behavior.
- Since the provided options list is missing in this prompt, we cannot evaluate other competing statements. If there were additional choices, each would need the same kind of check: does the stated relationship between income and quantity demanded align with the definition of a normal or inferior good for Alyssa, or do other theories (e.g., Giffen or Veblen effects) plausibly apply given further context?

SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 4, Individual Portion

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

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SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 4, Individual Portion

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

View Explanation

Log in for full answers

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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?

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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 _.