Unit 6

Question 1

Normal goods

Answer 1

as income increases, quantity demanded increases

Question 2

Inferior goods

Answer 2

As income increases, quantity demanded decreases

Question 3

Shifting budget line outwards

Answer 3

Income increase for both normal and inferior goods

Question 4

Income offer curve

Answer 4

bundle of goods that are demanded at different levels of income

Question 5

Income expansion path

Answer 5

Income offer curve

Question 6

Engel curve

Answer 6

graph of the demand for ONE of the goods as a function of income

Question 7

Income offer curve - perfect subs

Answer 7

horizontal if good 1 is cheaper

Question 8

Slope of engel curve - perfect subs

Answer 8

price of good 1

Question 9

Slope of engel curve - perfect complements

Answer 9

p1+p2

Question 10

slope of Engel curve - Cobb Douglas

Answer 10

p1/a

Question 11

luxury good (Engel curve)

Answer 11

demand for a good goes up by a greater proportion than income

Question 12

Necessary good (Engel curve)

Answer 12

demand goes up by a lesser proportion than income

Question 13

homothetic preferences

Answer 13

demand for good goes up by the same proportion as income (straight line through the origin)

Question 14

Ordinary good

Answer 14

demand for good increases as price decreases

Question 15

Giffen good

Answer 15

demand for good 1 decreases as price decreases