Based on Exhibit 4, assume a consumer has €100 to spend and must decide between purchasing socks or belts. How would you classify a pair of socks in this scenario?

Multiple choice question for Consumer Theory vs. Real Consumers. Select an option, then review the explanation below.

Explanation

Option A refers to goods for which demand decreases as income rises, known as inferior goods. Option B describes Giffen goods, which are rare and exhibit upward-sloping demand curves. Option C correctly identifies socks as normal goods, meaning demand increases with income. Option D is incorrect as option C is the appropriate classification.

Practice related questions from the same subject.

1.Assuming that consumption during youth and old age are both normal goods, how does a rise in the interest rate affect the amount saved?
2.What happens to the budget line if both income and prices double simultaneously?
3.Refer to Exhibit 4. Assume a consumer is deciding between purchasing socks and belts, with an income of €100. If the price of socks decreases from €5 to €2 per pair, which movement illustrates the substitution effect?
4.When a rise in a consumer's income leads to a reduction in the amount of a product they buy, how is this product classified?
5.Consider a graph where the quantity of good X is represented on the x-axis and the quantity of good Y on the y-axis. If the indifference curves are concave toward the origin, how does the marginal rate of substitution of good Y for good X (the slope of the indifference curve) change as we move from a situation with a large amount of good X to one with a large amount of good Y?

Based on Exhibit 4, assume a consumer has €100 to spend and must decide between purchasing socks or belts. How would you classify a pair of socks in this scenario?

Explanation

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