Author Question: For a normal good, the income and substitution effect work in the same direction. For an inferior ... (Read 104 times)

Davideckstein7 · **on:** Jun 29, 2018

For a normal good, the income and substitution effect work in the same direction. For an inferior good, the income and substitution effects work in opposite directions.

Does this imply that the demand curve for an inferior good is upward sloping? Explain.

Question 2

The deadweight loss from a monopoly loss measures the inefficiency created by monopoly.

Indicate whether the statement is true or false

nmyers · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

No. As long as the income effect is smaller than the substitution effect the demand curve will still be downward sloping.

Answer to Question 2

TRUE