[Anonymous]

Hi All, I’m working some questions on cpareviewforfree (to supplement my Becker) and came across this one. I’m sure I’ll be embarrassed I asked after someone explains it to me…but I’m having “a moment”! Someone explain this answer to me, please 🙂

“When consumer income decreased, the consumption of lunchmeat fell and the consumption of peanut butter increased. Everything else equal, which of the following must be true?”

A Lunchmeat and peanut butter are substitute goods.

B Lunchmeat and peanut butter are complements.

C Lunchmeat is an inferior good.

D Peanut butter is an inferior good.

The answer is: “D”

When income rises consumers buy less of an inferior good and more of a normal good. In this case, peanut butter is an inferior good and lunchmeat is a normal good, making D the correct answer.

[kip_snoodles]

Hi,

The consumption of superior goods increases as the consumer's income increases. Replace lunchmeat with steak, and peanut butter with ramen noodles, and the question makes more sense. You are no longer buying steak (superior) since your income has gone down. This means ramen noodles are an inferior good. An inferior good is a product you will stop purchasing as your income goes up. I know my response was kind of scattered, but I hope that helps a little.

[Anonymous]

Omg thank you. I now know it's time to take a break! I read it wrong and was trying to solve it like it said “consumer income increased”!

I remember seeing someone's signature on the board that says “Read the d@mn question” or something like that…ughhh, so true!

[Author]

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