380 Problem set _7-Relationships among demands R

380 Problem set _7-Relationships among demands R - Problem...

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Problem Set #7 Econ. 380-Demand Relationships Among Goods R. Pope Winter 2011 Non-technical 1. Hard Times Burt only buys rotgut whiskey and jelly donuts to sustain him. For Burt, rotgut whisky is an inferior good that is a Giffen good, while rotgut whisky and jelly donuts are Hicksian substitutes in the customary sense. Develop an intuitive explanation to suggest why a rise in the price of rotgut must cause consumption of jelly donuts to go down (goods are gross complements). 2. Let gross substitutes be such that as the price of x rises more is demanded of y. Let net substitutes be such that as the price of x rises the compensated demand for y increases. TFU-For normal goods, x being a gross substitute implies that x is a net substitute? 3. TFU. A rise in the price of housing is expected to have a large impact on the demand for doorknobs but a rise in the price of doorknobs is expected to have little impact on the demand for housing?
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