Economics Essay

2206 WordsOct 21, 20119 Pages
INTRODUCTION TO ECONOMICS QUESTION 1 A) Normal goods: According to (Paul A. Samuelsson 2010, pg 84) an economic term used to explain Goods for which its demand increases as income increases and falls as its income decreases but the price remains constant. In order terms a good is normal when its consumption increases when the income increases , as the income of an economy increases there will be increase in the demand for more goods and services, an example in luxury goods as the income increases the demand for such kinds of product will also increase. Example of normal goods includes new cars, new cloths or new equipments. Inferior goods: These goods for which demand diminishes as the level of income in the economy raises, the consumption of inferior goods decrease. Inferior goods are any goods that consumers will demand less if there was a increase in their income level. Example of inferior goods includes, used cloths, second-hand car. B) In my opinion a bus ticket is an inferior good, because from the definition of inferior goods which says inferior goods is any good that a consumer will demand less of if there was an increase in income level. An individual will only have need or consider a bus ticket instead of driving his or his own car in order to cut down cost to making use of a less expensive form of transportation due to less income, so yes a bus ticket is an inferior good. C) An income increase would mean increased demand for product A which is an indication that product A is a normal good while the demand for product B would diminish due to increase in income, although they are both substitute product increase income would increase demand A as consumers income increase his preference for more costly goods will increase as such doing away with the substitute while B diminishes because it’s an inferior good.. QUESTION 2

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