Author Question: If a good is income inelastic what does this imply would happen to consumption of this good if you ... (Read 37 times)

james0929 · **on:** Jun 29, 2018

If a good is income inelastic what does this imply would happen to consumption of this good if you were to win the lottery?

What will be an ideal response?

Question 2

Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer's pasture do not suffer from the tragedy of the commons?

What will be an ideal response?

karmakat49 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

By definition an income inelastic good is one whereby the consumer does not change their consumption very much compared to the change of their income. If the consumption changes in the same direction by a percentage less than the change in income then the good in question is income inelastic or a necessity good. In the case of winning the lottery it is unlikely that consumption of the good in question will rise very much compared to the increase income from the winnings.

Answer to Question 2

Fish in the ocean are a common resource because they are rival, so that one person catching a fish prevents others from catching the same fish, and they are nonexcludable, so that no one can be prevented from fishing. As a result, over-fishing is likely to occur. But cattle grazing in a farmer's pasture are not a common resource. The cattle are rival, so that one person butchering a steer prevents others from butchering the same steer, but the cattle are excludable, so that no one can butcher a steer unless the cattle's owner is compensated. As a result, the owner has the incentive to conserve the resource, that is, the owner has the incentive to insure that the cattle are not overused.