Quiz4_F10_Key - curve? Why or why not? Yes, the Engel and...

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3550 F10 Quiz 4 Last Name: First Name: 1. (4 points) Consider the following: a. (2) Is it possible for all goods a consumer buys to be normal? Explain. Yes, there is no problem to spend more money on each good when you have more income. b. (2) Is it possible for all goods a consumer buys to be inferior? Explain. NO, if you buy less of all goods when you have more income, you are not exhausting your income. Unless you have an option to save, you are not maximizing your utility. 2. (6 points) Consider the following: a. (3) Can a good have both a downward-sloping Engel curve and a downward-sloping demand
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Unformatted text preview: curve? Why or why not? Yes, the Engel and demand curves can both be downward sloping. This occurs when the good is inferior but not Giffen. b. (3) Can a good have both an upward-sloping Engel curve and an upward-sloping demand curve? Why or why not? No, the Engel and demand curves cannot both be upward sloping. If the Engel curve is upward sloping, then the good must be normal. However, the law of demand always holds for normal goods, because the income effect reinforces the substitution effect in this case. Thus an upward-sloping Engel curve guarantees that the demand curve is downward sloping....
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