Question

Good 1 and Good 2 are perfect substitutes. Suppose that good 1 is an ordinary good.

a. Should both good 1 and good 2 be normal goods? Explain.

b. Should good 2 be an ordinary good? Explain.

Answer 1

Ordinary goods in simple terms are those type of goods which quantity demanded increases as the price falls and vice versa is also true

But if we talk about the normal good then we have to understand the relationship between income and quantity demanded by the consumer

for normal good, as the income rises the quantity demanded by the consumer rises

Here good 1 and good 2 are perfect substitutes to each other It means they can replace each other

the example of perfect substitutes can be tea and coffee , Pepsi and coke

1true

Here both goods should be normal good as well

Opposite to normal good is inferior good

Inferior goods are those good which quantity demanded decreases as the income level rises

So for the normal goods law of demand will exists

2 true

If we talk about the good 2 then good 2 should also be ordinary good so that it follows the law of demand

According to law of demand price and quantity demanded are inversely related in cetris paribus or if other things are held constant

If good one and good to both become ordinary good then they can replace each other perfectly and also called substitutes because for this goods the consumer demand will rise as the income rise