Suppose that the substitution effect of a decrease in the price of food is the same...

Suppose that the substitution effect of a decrease in the price of food is the same for both Harry and Sally. However, Harry feels that food is an inferior good while Sally feels that food is a normal good. As a result,

Question 10 options:

	Harry's demand curve for food will be flatter than Sally's
	Harry's demand curve for food will be steeper than Sally's.
	Harry's demand curve for food will be the same as Sally's.
	There is not enough information to conclude anything.

Solutions

Expert Solution

Harry's demand curve for food will be steeper than Sally's.

(SE is same for both Harry and Sally. But IE will be different. It will be positive for Harry as he considers food an inferior good and negative for Sally as for her food is a normal good. So, final increase in quantity demanded of food due to decrease in price will be much greater for Sally. So, Harry's demand curve will be steeper.)

Rahul Sunny answered 1 year ago

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