Author Question: Why might luxury-goods retailers limit purchases on a good by consumers due to popular demand? A) ... (Read 43 times)

bobbysung · **on:** Jul 1, 2018

Why might luxury-goods retailers limit purchases on a good by consumers due to popular demand?

A) Because they are worried about running out of supply, leaving some of their customers unhappy that they can't buy the good.
B) Because they are trying to use scarcity as a way to improve the brand image of the good.
C) Because they are limiting the possibility of arbitrage, where consumers buy in a low price area and resell in a higher price area.
D) Because they are worried that they'll run out of the good during the all-important holiday season.

Question 2

Use the Slutsky equation to show that a Giffen good must be an inferior good, BUT an inferior good need not be a Giffen good.

What will be an ideal response?

pangili4 · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

C

Answer to Question 2

The Slutsky equation may be written as dQ/dpTotal = dQ/dpsubs - _(dQ/dI). For a Giffen good, dQ/dpTotal is positive, which implies that - _(dQ/dI) must be positive and large enough to offset dQ/dpsubs, which is always negative. For any inferior good, however,
- _(dQ/dI) is positive but not necessarily large enough to make dQ/dpTotal positive.