Are luxury good inferior goods? Why lower price luxury goods will not attract people? Can you...

Are luxury good inferior goods? Why lower price luxury goods will not attract people? Can you use graph to explain?

Expert Solution

Luxury goods are ones whose demand increases more than proportional to the increase in income of the consumers. It is not an inferior good. Rather, it is the opposite of an inferior good whose demand falls with an increase in consumer's income. Thus, luxury good is just like a normal good, i.e. an increase in income causes its demand to increase. But, normal goods are not luxury goods because of the price effect.

If price of normal good falls, its demand would increase because it is cheaper and consumers will derive more utility. But, if price of luxury good falls then its demand will also fall. The reason behind this is that a cheap luxury good is no more luxurious to its consumers. The luxury is embedded in the fact that the good is expensive. Eg: A Rolex is a luxury good because I can show it off. If I simply had to see the time, why would I buy a Rolex? And if Rolex is now cheaper, I no more derive any utility from showing it off and I will not demand it anymore :)

Thanks!

Rahul Sunny answered 7 months ago

Some goods are normal goods at lower income levels and inferior goods at higher income levels....

Some goods are normal goods at lower income levels and inferior goods at higher income levels. One example is the fast food category in the US restaurant industry (e.g., McDonalds). In this case, lower income consumers will purchase more fast food if they earn small increases in income. However, the consumers will substitute other types of food and purchase less fast food as their income rises to much higher levels. Can you think of a second example from some other...

What is the difference between normal goods and inferior goods? A giffen good is one that...

What is the difference between normal goods and inferior goods? A giffen good is one that has an upward sloping demand curve -- as price increases so does quantity demanded. Is a Giffen good always a inferior good? Why or why not? Can you give an example?

A Consumer's bundle includes goods X and Y, where good X is an inferior good, and...

A Consumer's bundle includes goods X and Y, where good X is an inferior good, and good Y is a normal good. According to (and only focusing on) the income effect ( and ignoring all other effects) the impact of a price decrease of good X will be a ____________ a. substituting consumption away from Y to good X b. decreased consumption of X c. Increased consumption of X

Can a good be normal anda inferior at the same time?

The price and quantity of A, an inferior good, sold decreased after a shock to the...

The price and quantity of A, an inferior good, sold decreased after a shock to the market. What could explain this change? A) An increase in price of B (a complementary good for A) B) An increase in price of C (a substitute good for A) C) A decrease in the income of A consumers D) All of the above are correct E) Both a and c are correct F) Both a and b are correct G) Both b and...

Illustrate income and substitution effects for an inferior good x when the price of good x...

Illustrate income and substitution effects for an inferior good x when the price of good x decreases. Label clearly the income and substitution effects and report if they are positive or negative. Graphically derive the individual Marshallian demand curve in a separate graph.

An inferior good has a ______________________. Positive price elasticity of demand b) Negative price elasticity of...

An inferior good has a ______________________. Positive price elasticity of demand b) Negative price elasticity of demand c) Negative Income elasticity of demand d) Positive income elasticity of demand A movement down the demand curve is a(n): A decrease in quantity demanded b) an increase in quantity demanded c) an increase in demand d) a decrease in demand When a market is at equilibrium, There are no shortages or surpluses b) the price is a fair price c) all consumers...

What is an inferior good? Explain your answer with examples. Can be a Giffen good ever...

What is an inferior good? Explain your answer with examples. Can be a Giffen good ever have positive income elasticity of demand?

Do you consider leisure to be a normal or inferior good? Why? Under what circumstances might...

Do you consider leisure to be a normal or inferior good? Why? Under what circumstances might you think differently?

Tapera consumes potatoes and other goods (potatoes is an inferior good). Using the indifference curve analysis...

Tapera consumes potatoes and other goods (potatoes is an inferior good). Using the indifference curve analysis draw a graph that clearly show the forces (effects) that determines a consumer final consumption of beef when its price increases, while holding the price of all other goods constant (Hint: note that price of potatoes increase).

Question