Question

Which of the following is an example of an inferior good?

• A famous brand of leather good produces a handbag that costs as much as a used car. Although it is far from cheap, it is one of the brand's most popular items.

• Every once in a while, Nelly treats herself to a manicure and pedicure with a massage.

• Chris just graduated from college and sometimes eats ramen noodles when his finances get tight. After he gets his paycheck, he purchases less ramen noodles as he can afford healthier food.

• Very poor people in China consume a great deal of rice. When the price of rice rises, consumption of it may even rise.

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Tania really enjoyed the salads sold at her local grocery store, so she purchased five of them to eat throughout the week. The first salad is delicious, and Tania eats it quickly, looking forward to the next one. The second day, the next salad is also good. By the third day, some of the ingredients in the next salad are starting to go bad, and by the fourth day, Tania cannot bring herself to eat any more and throws away the remaining salads.

Which statement would be unlikely in economic terms?

• Tania achieved utility maximization with her purchase of five salads.

• Tania would achieve higher marginal utility by eating something other than the fourth salad.

• Tania's marginal benefit was higher for the first two salads than the third and fourth.

• Tania would achieve higher marginal utility if she purchased fewer salads.

Answer 1

1) Here, ramen noodles is the only inferior good as its consumption rises when income is low (and consumption falls when income rises).

All other items have higher consumption with increase in income.

2) Here, only statement A is unlikely, as Tania was unable to eat fourth and fith salad. Thus, utility is not maximized from all five salads.

Other options are all likely.

Thus, option A is the correct answer.