Assume that bologna is an inferior good. Suppose consumer incomes are declining due to the recession, and,...
Assume that bologna is an inferior good. Suppose consumer incomes are declining due to the recession, and, at the same time, firms are seeing an increase in the production costs of producing this lunch meat. Draw a supply and demand diagram. Also, write WHY the curve (or curves) is (are) shifting based on the shift factors for demand and supply. What is happening to the equilibrium price and quantity? Remember the concept of ceteris paribus.
Homework Answers
Inferior good is a good whose consumption decreases when income of a person increases and consumption increases when income of a person falls .
Bologna is an inferior good and falling income of consumer due
to recession will lead to rise in demand of bologna due to which
demand curve shifts outwards.
As the production cost is rising , profit margin of firms fall price being the same due to which they will supply less amount and supply curve shifts to the left .
This can be shown in the following diagram.
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