Differentiate between the following
a) Normal goods and inferior goods
b) Substitutes and complements
a) A normal good is a good whose consumption increases with an increase in the consumer's income. Hence, it has a positive income elasticity of demand. The consumption of an inferior good decreases with an increase in the consumer's income. Hence, inferior goods have a negative income elasticity of demand.
b) Two goods are said to be substitutes when an increase in the price of one good leads to an increase in the demand for the other good. Hence, substitute goods have a positive cross-price elasticity of demand. Two goods are said to be complements if an increase in the price of one good leads to a fall in the demand for the other good. Hence, complement goods have a negative cross-price elasticity of demand.
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Effective price ceilings and price floors:
A. make the rationing function of free markets more efficient. B. cause surpluses and shortages, respectively. C. interfere with the rationing function of prices. D. shift demand and supply curves and therefore have no effect on the rationing function of prices.
In the United States the real wages of the least-skilled, least educated workers have ________ and the wages of best-educated, highest skilled workers have ________.
A. increased; increased B. declined; remained constant C. increased; declined D. declined; increased