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Question from Past Microeconomics Qualifying ExamEdit

Spring 2005 - Section I, Question four, George Mason University

T,F,U. State first whether the following statements are true, false or uncertain. Then briefly explain your resaoning in four or five sentences. You may sue a graph if it helps clairify your answer.

The proportion of the popluation with live-in servants has declined since 1900. Incomes have risen dramatically since 1900. Therefore, live-in servants must be an inferior good.

AnswerEdit

Uncertain. If the relative price of live-in servants would have stayed the same than this statement, i.e. live-in servants must be an inferior good, would be a correct observation. However, if incomes rose dramatically and wages for live-in servants went up relatively more than prices of other goods, then the direction of decline in the proportion of the population with live-in servants might be indicating that live-in servants are a normal good.

False. Thanks to advances in technology, each live-in servant is capable of doing a great deal more than servants of an earlier era. Thus, the servants are essentially two different goods and cannot be compared in this manner. The logic does not hold.


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