If a consumer is in equilibrium and all prices and her income increase by 25%, she will consume less of those goods that she considers inferior.
if false, explain why.
Take a shot. What does your economic reasoning tell you? Hint. If all prices and income rise by exactly 25%, how would you expect a person's consumption to change? if any?
it wouldn't change her consumption
Thats what I think too.
Good job! Your economic reasoning is correct. In this scenario, if all prices and the consumer's income increase by 25%, her consumption of goods that are considered inferior would not necessarily change.
To further explain why this is the case, let's understand the concept of inferior goods. An inferior good is a type of good for which demand decreases when consumer income rises. Generally, inferior goods are of lower quality or are considered less desirable compared to other available options.
When prices and income increase by the same percentage (in this case, 25%), the consumer's purchasing power remains unchanged. The consumer's ability to afford both inferior goods and other goods has increased proportionally. Therefore, there is no reason to expect the consumer to consume less of the inferior goods, as her preferences and buying power have not changed.
Economic reasoning suggests that the consumption of inferior goods may decrease when a consumer's income rises, but it would depend on how the consumer's income increases relative to the prices of the goods. In this hypothetical scenario, since both prices and income increase by the same percentage, it is reasonable to conclude that the consumer's consumption of inferior goods would stay the same.