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By obterving an inviduals behando in the stones ordined below, determine the relevant income elasticien of demand for each good e whether books and cute se realitete, cred you carnet determine the Income elasticity, what additional Womaten do you need? Suppose that Ben spends at his become on books and callee
By obterving an inviduals behando in the stones ordined below, determine the relevant income elasticien of demand for each good e whether books and cute se realitete, cred you carnet determine the Income elasticity, what additional Womaten do you need? Suppose that Ben spends at his become on books and callee. He finds 358 while rummaging terugh a ned paperback bir at the bookstove. Ho remedandy boys are underver back of poetry O A Books we a normal good and coffee beantral good. OB. Books and coffee are sommal goods OC Books we an interior good and cotee is a normal good OD. Books are a normal good and coffeels anerer good OE. We need to know how Ben's consumption of books and coffee would change this come changes to determine whether they are normal interior, entral goods Ben bonus $30 he was going to use to buy a double esprito. He decides to sell a row book at a discourse a hand and use Bensory to boy cute OA Books are a normal good and coffee an interior good OB Books and coffee are normal goods OC. Books are a normal good and cereal good OD Books are an inferior good and coffee anormal good OE. We need to know bow Descomption of books and coffee welcome changes to mine whether they are normale, et oods Being bohemian becomes the stoned As a row.cottee and book prices me by 25 percent to own tin consumption of bon poods by the same percentage O A Books normal good and comes to good OB. Boken inferior good and comes al good OC Books and coffee wel goods OD. Books are normal good and coffee is not good OE We need to know tow Ben's courten of books and catch the come changes were her they are not recoverenal goods Ben drops out of school and gets an MBA Hopsong books and any cofos Nowhereas the 150 Show and we botted minerale CA Books are for good and is a good OB Books are show good and conferior good OC Books are a normal good and colo
Expert Solution
THE SOLUTION IS AS FOLLOWS-
NORMAL GOOD- WHEN THE INCOME INCREASES THE DEMAND AND CONSUMPTION OF THE GOOD INCREASES
INFERIOR GOOD - WHEN THE INCOME INCREASES THE DEMAND AND CONSUMPTION OF THE GOOD DECREASES
THEY HAVE A NEGATIVE RELATION BETWEEN INCOME AND DEMAND
NEUTAL GOODS - DOESN'T DEPENDS ON INCOME
HAVE SUBSTITUTION EFFECT BUT NOT INCOME EFFECT
SO FOR THE FIRST PART
WE CAN SEE THAT THE INCOME HAS INCREASED AND BEN BUYS ANOTHER BOOK
HENCE THE DEMAND FOR BOOKS INCREASED BUT FOR COFFEE DECREASED
IN THIS CASE BOOKS ARE NORMAL GOODS AND COFFE IS INFERIOR GOOD
ANS-D)
FOR SECOND PART
WE CAN SEE THAT BEN SUBSTITUTED BOOK FOR COFFEE
SO WE CAN SEE THAT AS THE INCOME DECREASES BEN SOLD THE BOOK THE DEMAND FOR BOOKS DECREASES
SO HERE BOOKS ARE NORMAL GOOD AND COFFEE IS NEUTRAL GOOD
ANS- C
FOR THIRD PART
WE CAN SEE HERE THE PRICE IS CHANGING AND NOT INCOME
AND ACCORDINGLY THE CONSUMPTION IS LOWERING AS PRICE INCREASES
THAT TO BE BY SAME PROPORTIONS
HENCE BOTH ARE NEUTRAL GOODS
ANS-C
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