Tuesday, February 14, 2006

Demand, revisited

I'm working on getting people posting privileges - I should be able to make it so that anyone who is in the class can start a new post.

Regarding some of your comments on the questions on demand:

#3 --> If an apple can substitute for a pear (assuming it doesn't matter to you which one you eat), which is the normal good and which is the inferior?

Or, for those of you who are not "food minded", if it doesn't matter to you whether you drive a BMW or a Lexus, which is the inferior good?

The question is not asking if an inferior good CAN be a substitute for a normal good - it's asking if two normal goods CANNOT be substitutes for each other.

What does it mean to be an inferior good? What does it mean to be a normal good?


forsnic said...

i like beamers better so the lexus is inferior. but no okay. so since assuming they are both normal goods, they cannot be substitutes for each other because their prices are similar. much like the apple and pear. however, one of the normal goods can become inferior if its price decrease or a consumers income increases. right??

Joe Madden said...

i thought that the pear would be an inferior goood, because more people like apples. this would make the apple a normal good.

KM said...

If an inferior good means that you buy more when your income goes down (nothing to do with preference, really) and a normal good means you buy more when your income goes up...

Which is the BMW? Which is the Lexus? Which is the pear? Which is the apple?

helen said...

two normal goods don't have to be substitutes, for example apples and BMWs, but if we've got two similar goods (apples and pears) I'm inclined to say that, ignoring preference and everything else, then they are substitutes and neither is inferior. I could be wrong, though

KM said...

Helen has it on the nose.

They are substitutes and neither is inferior. Two normal goods may be substitutes for each other.

Remember - there is a definite definition for "normal" and "inferior". Although some of it is opinion, the difference between a BMW and a Lexus is not the difference between normal & inferior.