I have three True/False questions. If they are false, please explain why. It is due Monday.
1. A shift in supply causes the price of a good to rise. The shift must have been an increase in supply.
I think this is True.
2. The price of good X rises. This causes an increase in the price of good Y. Goods A and B are substitutes.
I think this is False, because there is not enough information about Good A and B.
3. Two inferior goods can be complements to each other.
I think this is true.
1. If there is a surplus (increase in supply) the price drops.
2. I think you are correct
1) answered by Lance
2) If X and Y are substitutes, then when the price of X rises, people by less X and more Y (i.e., demand for Y rises). Price of Y goes up. So, I believe #2 is true.
3) Inferior goods are things you buy less of as income rises. Complements are two goods typically purchased together. Two inferior goods can be complements. So, I believe 3 is true.
The thing throwing me off on #3 is that our instructor had mentioned both goods could not be inferior?
Thanks to both of you! :-)
Regarding question 3, the statement "Two inferior goods can be complements to each other" is actually true. Let me explain why.
In economics, inferior goods are goods for which demand decreases as consumer income increases. On the other hand, complements are two goods that are typically consumed together, meaning that the demand for one good increases the demand for the other.
In the case of two inferior goods being complements, let's say we have two goods A and B. As income rises, the demand for both A and B decreases due to their inferiority. However, if these goods are typically consumed together and the decrease in demand for A leads to a decrease in demand for B as well, then A and B can be considered complements to each other.
So, in summary, two inferior goods can indeed be complements, despite the common assumption that both goods cannot be inferior.