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Steak is a normal good. If the price of steak increases,

a. the income effect on the demand for steak will reinforce the substitution effect.

b. the income effect on the supply of steak will, to some extent, offset the substitution effect.

c. the budget line will rotate outward.

d. consumers' purchasing power will increase.

e. the budget line will shift outward.

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Joshua Stredder
Joshua StredderLv10
28 Sep 2019

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Related questions

A cafe catering for staff in a large corporation offers steak sandwiches and hamburgers as part of its menu. a) Recently corporation staff was awarded a 7.5% wage rise. Since then the cafe manager has noticed that the average daily sales of steak sandwiches increased from 54 to 60 and the average daily sales of hamburgers increased from 88 to 93. Specify and calculate the elasticities that the cafe manager can use to explain these relationships. State whether steak sandwiches are a normal or inferior good. State whether hamburgers are a normal or inferior good. Explain your answers. (6 marks) b) The cafe manager estimates that daily demand for steak sandwiches is represented by Q = 121.67 - 6.67P where: P = price per steak sandwich in dollars Q = number of steak sandwiches sold per day. The current average daily sales of steak sandwiches are 60. What price is the cafe currently charging for steak sandwiches? (2 marks) c) The cafe manager notices that a nearby corner store is charging $8.50 per steak sandwich, and is contemplating whether to match the price. Would the cafe lose revenue on steak sandwich sales if it charged $8.50? Justify your conclusion based upon your estimate of the own-price elasticity of demand. Interpret the value and meaning of this elasticity (use the mid-point method to calculate the own-price elasticity of demand). (6 marks) d) The cafe manager estimates that daily sales of hamburgers would decrease by 11.82% if the price of steak sandwiches was reduced to $8.50 Specify and calculate the elasticity that the cafe manager can use to explain this relationship between the price of steak sandwiches and hamburger sales. Interpret the value and meaning of this elasticity (use the mid-point method to calculate the elasticity). (6 marks) e) Using the information from parts a), b), c) and d) of this question, provide a recommendation as to whether the cafe should reduce the price of a steak sandwich from $9.25 to $8.50 to increase total revenue? Use a price for hamburgers of $7.00 each (assume the supply of hamburgers is perfectly price elastic).

Which of the following that will occur when the price of normal good falls?

a. The income effect and the substitution effect will work to increase the quantity demanded of goods whose price decreases due to an increase in purchasing power.

b. The income and substitution effect will work towards decreasing the demand of consumers because the purchasing power will relatively decrease from the fall of the price.

c. The substitution effect expresses that the sales of goods whose price rises to increase.

d. None of the above.

Ā 

29) If the price of a normal good rises, the income effect A) will increase consumption of the good and the substitution effect will decrease consumption. B) will decrease consumption of the good and the substitution effect will increase consumption. C) and the substitution effect will both increase consumption of the good. D) and the substitution effect will both decrease consumption of the good. E) is always larger than the substitution effect.

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