Managerial Economics

Topics: Consumer theory, Supply and demand, Cable television Pages: 2 (525 words) Published: April 2, 2013
Learning activity 2 ch 3-U2
Read chapter 3, Demand and Supply, of your textbook. Answer the questions below. If a different source is used, identify your reference (title, author, edition, page, web page, date) as a footnote. Copy and paste are not allowed. Show how you obtained your final result. Take into account the due date for submitting assignments. 

1. When do we say that two commodities are complements or substitutes? 2. 2.   When do we classify goods as normal or inferior? According to information obtained page and using the example of cable television is:

“The alternative to an inferior good is a normal good. A normal good exists if buyers are inclined to buy more of the good when they have more income. A normal good is so named because it represents the typical or normal situation for most goods. As such, when buyers have more income, then they tend to increase their purchases of normal goods. Depends on the Situation

Classifying a good as normal or inferior is not an intrinsic characteristic of a good itself, but depends on the situation of the buyer. A particular good might be inferior for one buyer and normal for another. Consider a good such as cable television.

* Inferior Good: A buyer with a great deal of income, such as the truly wealthy, might view cable television as an inferior good. An increase in income probably induces a decline in cable television services, as the buyer opts for live entertainment, satellite television, and other more expensive, but more preferred alternatives. * Normal Good: A buyer lower down the income spectrum probably views cable television as a normal good. An increase in income likely triggers a proportional increase in cable television services, such as moving from basic cable to digital cable. Income Elasticity

Classifying a good as inferior is accomplished in a precise manner using the income elasticity of demand. The income elasticity of demand is the relative...
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