What is the difference between a normal good and an inferior good? How does this relate to the demand curve?
What will be an ideal response?
A normal good is one for which demand increases as income increases, and an inferior good is one for which demand decreases as income decreases. Hence, an increase in income causes the demand curve for a normal good to shift to the right, showing an increase in demand; and an increase in income causes the demand curve for an inferior good to shift to the left, showing a decrease in demand.
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The ________ the expected future exchange rate, the greater is the expected profit from holding dollars and so the ________
A) higher; demand curve for dollars shifts rightward B) lower; supply curve of dollars shifts rightward C) higher; demand curve for dollars shifts leftward D) higher; supply curve of dollars shifts rightward E) lower; demand curve for dollars shifts leftward
Suppose an increase in demand causes the price to increase from $2 to $4 and the quantity to increase from 1,000 to 1,800. Using the midpoint method, the elasticity of supply equals
A) 0.86. B) 1.17. C) 2.74. D) 0.68. E) None of the above answers is correct.