Determine whether each good is a normal good or an inferior good for the average consumer. a. For most consumers, the newest iPhone is an inferior good. b. For most consumers, a 10-year-old used car is a normal good. c. For most consumers, dental services are a normal good.
Which of the following questions would be studied in the area of microeconomics? – What portion of total spending comes from households? – Will an increase in government spending cause inflation? – What determines the number of hours an individual works? – Does hosting the Olympics decrease the unemployment rate?
- Do interest rates affect net exports?
The Correct Answer and Explanation is :
1. Normal or Inferior Goods:
a. For most consumers, the newest iPhone is an inferior good.
This statement is incorrect. The newest iPhone is considered a normal good for most consumers. A normal good is one where demand increases as income rises, and people generally desire the latest and most advanced technology, like the newest iPhone. As consumers’ incomes increase, they are more likely to purchase the latest iPhone, making it a normal good.
b. For most consumers, a 10-year-old used car is a normal good.
This statement is incorrect. A 10-year-old used car is typically considered an inferior good for most consumers. Inferior goods are those whose demand decreases as consumers’ incomes rise. As people earn more, they often prefer to purchase new cars or newer used cars, reducing the demand for older vehicles like a 10-year-old used car. Therefore, this would be considered an inferior good.
c. For most consumers, dental services are a normal good.
This statement is correct. Dental services are generally considered a normal good because as consumers’ incomes rise, they tend to spend more on healthcare services, including dental care. Regular check-ups and cosmetic dental procedures are often associated with higher-income individuals who can afford them more frequently.
2. Microeconomics Questions:
– What portion of total spending comes from households?
This is a microeconomic question because it focuses on the behavior of individual consumers and households, which are smaller units within the economy. Microeconomics studies how individual entities (households, firms, etc.) allocate their resources, including spending.
– Will an increase in government spending cause inflation?
This is more of a macroeconomic question. It concerns the economy as a whole, particularly the effects of fiscal policy on inflation, which falls under macroeconomics.
– What determines the number of hours an individual works?
This is a microeconomic question. It focuses on an individual’s decision regarding labor supply, considering personal factors like income preferences and wage rates.
– Does hosting the Olympics decrease the unemployment rate?
This is a macroeconomic question because it looks at the economy on a larger scale, focusing on national employment levels as a result of hosting a major event.
– Do interest rates affect net exports?
This is more of a macroeconomic question because it involves the broader economy and examines the relationship between interest rates and international trade.
Explanation:
Microeconomics and macroeconomics differ in their focus. Microeconomics is concerned with the behavior of individual consumers, firms, and markets. It studies how these smaller units make decisions regarding consumption, production, and resource allocation. Macroeconomics, on the other hand, looks at the economy as a whole, examining factors like inflation, unemployment, government spending, and economic growth. The distinction is key when analyzing the impact of different variables on either a single entity (micro) or the entire economy (macro).