econ 211 lecture 8

econ 211 lecture 8 - Econ 211 Normal vs. Inferior Good...

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Econ 211 Lecture 8 Patrick McLaughlin Normal vs. Inferior Good Is leisure a normal or inferior good? In 1891, Andrew Carnegie (a steel and railroad tycoon) created the Carnegie Foundation and designated it as his inheritor – to his children’s dismay, perhaps. According to Carnegie, “The parent who leaves his son enormous wealth generally deadens the talents and energies of the son and tempts him to lead a less useful and less worthy life than he otherwise would.” In other words, Carnegie thought that leisure is a normal good: an increase in income (inheritance) would induce recipients to consume more leisure activity. Modern day studies confirm Carnegie’s belief: a single person who receives a $150,000 inheritance is four times more likely to leave the labor force for the full-time pursuit of leisure than a person with an inheritance of less than $25,000. For the children of wealthy parents, at least, leisure is a normal good. Shortages and Surpluses Consider the following: Price per CD-RW Q-Supplied Q-Demanded Difference (Qs – Qd) $5 10 million 2 million 8 million (Surplus) 4 8 4 4 (Surplus) 3 6 6 0 Market-clear./Eq 2 4 8 -4 (shortage) 1 2 10 -8 (shortage) Graph: Equilibrium – the point at which quantity demanded equals quantity supplied at a particular price. AKA market clearing price – it clears the market of all excess supply and demand. Shortage – quantity demanded exceeds quantity supplied at a price below the market
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econ 211 lecture 8 - Econ 211 Normal vs. Inferior Good...

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