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    Distinguish between normal and inferior goods

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    Distinguish between normal and inferior goods.

    How can cross elasticities be used to help define the relevant firms in an industry?

    Suppose the price of heating oil increases significantly. Discuss the likely short-run and long-run effects.

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    Solution Preview

    Hi there,

    In consumer theory, an inferior good is a good that decreases in demand when the consumer's income rises, unlike normal goods, for which the opposite is observed. Inferiority, in this sense, is an observable fact rather than a statement about the quality of the good.

    Inter-city bus service is an example of an inferior good. This form of transportation is cheaper than air or rail travel, but is more time-consuming. When money is constricted, in comparison to time, traveling by bus becomes more palatable, but when money is more abundant than time, thus, worth more of it, more rapid transport is preferred.

    Inexpensive goods like frozen dinners and ...

    Solution Summary

    The expert distinguishes between normal and inferior goods. Cross elasticity are determined.

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