Microeconomics Question from Walter E. Williams:Edit
Characterize (graphically) a normal good, an inferior good, and an ultra-superior good. Give examples of each. For two goods X and Y, which of the above must they be if the Income Expansion Path (IEP) has a positive slope? What can you say if the (IEP) has a negative slope?
- Normal Good: Housing: As income increases housing as a percent of the budget stays roughly the same. Empirical evidence: Accross income brackets people spend roughly 35-45% of their Disposable Income on housing. While it is true that poorer people spend a little more, housing is amazingly stable as income rises.
- Inferior Good: Kraft Dinner "If I had a million dollars... We wouldn't have to eat Kraft Dinner" As income increases inferior food items as a percent of the budget decreases.
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