A. Define inferior good. Give one example. Draw a demand curve for it and fully label the diagram. Why do some people want to pay for it?

B. Define normal good.

C. Return to the demand curve diagram from part A. Imagine that the buyers of this product all have received an income increase. Draw a new demand curve on that diagram to show the change due to the consumer’s income increase. Give one explanation for that change, and label which is the new demand curve. (note: Writing out an explanation is a good general practice for avoiding errors.)

D. Briefly give the definition of insurance that we used in class. Sometimes insurance is an inferior good. Write a scenario that correctly views an insurance policy (auto, homeowners, life, health, etc.) as an inferior good. Explain why this consumer is right to call insurance an inferior good.

Expert Solution

3) A,B,C

Rahul Sunny answered 2 years ago

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