Question 11 of 22 Map A sapling learning The graph below shows 2 budget lines an
ID: 1188795 • Letter: Q
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Question 11 of 22 Map A sapling learning The graph below shows 2 budget lines and 6 consumption points for Pepsi and Dr. Pepper (A,B,C,D,E, and F). Assume that the consumer, Fred, attempts to maximize his utility and exhausts his budget on the two goods. If Fred's income increases, the movement from Point A to is consistent with Pepsi being a normal good and Dr. Pepper being an inferior good O Point A O Point B O Point C O Point D Pepsi O Point E O Point F Budget Line 2 If Fred's in increases, the movement from Point A come to is consistent with Dr. Pepper being a normal good and Pepsi being an inferior good. Budget Line 1 O Point A O Point B Dr. Pepper O Point C Note: Budget line 1 is before the increase in O Point D Fred's income while Budget line 2 is after the increase in Fred's income. O Point E O Point F AO Previous ® Give Up & View solution Check Answer Next H Ext HintExplanation / Answer
A normal good is one whose demand increases with increase in income
and an inferior good is one whose demand decreases with increase in income.
1. Pepsi is normal good - its consumption will increase
Dr. Pepper is inferior - its consumption will decrease
The point has to be on line 2 so rule out B, A and C.
Consider point E and F - They have higher consumption of Dr. Pepper than point A - Thus rule out E and F.
Correct choice is point D as it has higher consumption of Pepsi and lower consumption of Dr. Peppers
2. Dr. Pepper is normal good - its consumption will increase
Pepsi is inferior - its consumption will decrease
The point has to be on line 2 so rule out B, A and C.
Consider point D and E - They have higher consumption of Pepsi than point A - Thus rule out D and E.
Correct choice is point F as it has higher consumption of Dr. Peppers and lower consumption of Pepsi
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