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Unformatted text preview: There are some exceptions, however: not all goods are normal goods. For instance, if an increase in your income causes you to buy less of a good, that good is called an inferior good. For instance, "poor college students" often satisfy themselves with generic soda and cheap ramen. When they get jobs and a steady income, however, they might forego the cheap soda and ramen in favor of Coke and pasta. In this example, the generic soda and cheap ramen are inferior goods. Income and substitution effects change demand differently with different types of goods. For instance, we have been looking at income and substitution effects when a buyer is faced with a choice between two normal goods. An increase in the price of good A will cause a decrease in consumption of A, and an increase in consumption of good B (assuming that the substitution effect is stronger than the income effect). If good A is a (assuming that the substitution effect is stronger than the income effect)....
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- Fall '11