<p>According to me  bread can be both normal or inferior given the extent of the income effect. Since substitution effect is always negative, increase in he price of bread reduces its demand. Since its given in the ques that demand of bread has fallen, the income effect can work in either direction, i.e., in the same direction as substitution effect or in the opposite direction( but with smaller magnitude).</p>
<p>As for cheese, it should be a normal good, since decrease in the real income leads to decrease in demand for cheese.</p>

CC BY-SA 4.0
2023-11-10T15:48:12.473Z
2023-11-10T15:48:12.473Z
Abhilasha Saxena
<p>Person A spends their income only on bread and cheese. Given a rise in the price of bread leaving income constant and the price of cheese constant, the consumer consumes less bread and less cheese. Which one of the following statements is correct?</p>
<p>a) Bread is a normal good
b) Bread is an inferior good
c) Bread is a Giffen good
d) Cheese is a normal good
e) Cheese is a inferior good
f) Cheese is a Giffen good</p>
<p>I have eliminated option c) as the law of demand clearly holds for bread and hence, it cannot be a Giffen good. I know for a fact that the law of demand also holds for normal goods and for certain inferior goods so I am unsure of whether a) or b) is correct. As for d), e), f), I am also a little bit hesitant to conclude the type of the good using cross-price income and substitution effects and I don't think that makes sense to do. Any advice is much appreciated.</p>

<microeconomics><mathematical-economics><utility><elasticity>
MCQ on income and substitution effects
secretrevaler
# MCQ on income and substitution effects

(Asked by: username_0 on 2023-11-10)

Person A spends their income only on bread and cheese. Given a rise in the price of bread leaving income constant and the price of cheese constant, the consumer consumes less bread and less cheese. Which one of the following statements is correct?

a) Bread is a normal good
b) Bread is an inferior good
c) Bread is a Giffen good
d) Cheese is a normal good
e) Cheese is a inferior good
f) Cheese is a Giffen good

I have eliminated option c) as the law of demand clearly holds for bread and hence, it cannot be a Giffen good. I know for a fact that the law of demand also holds for normal goods and for certain inferior goods so I am unsure of whether a) or b) is correct. As for d), e), f), I am also a little bit hesitant to conclude the type of the good using cross-price income and substitution effects and I don't think that makes sense to do. Any advice is much appreciated.

**Tags:** microeconomics, mathematical-economics, utility, elasticity

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## 1 answers

### Answer by username_1 on 2023-11-10. Score: 0 | Accepted answer

According to me bread can be both normal or inferior given the extent of the income effect. Since substitution effect is always negative, increase in he price of bread reduces its demand. Since its given in the ques that demand of bread has fallen, the income effect can work in either direction, i.e., in the same direction as substitution effect or in the opposite direction( but with smaller magnitude).

As for cheese, it should be a normal good, since decrease in the real income leads to decrease in demand for cheese.


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