Joe consumes 10 units of food and 12 units of clothing.Since food is an inferior good,a gift to Joe of a $12 gift certificate at a clothing store will:
A) induce Joe to eat more than 10 units of food.
B) definitely make Joe better off than a gift of $12 in cash.
C) definitely make Joe worse off than a gift of $12 in cash.
D) None of the preceding statements is correct.

Question

Quizplus · Accepted Answer

Since food is an inferior good for Joe, a gift certificate specifically for clothing does not necessarily affect his consumption of food directly nor does it guarantee that he is better or worse off compared to receiving cash. The effect of the gift certificate on Joe's welfare depends on his preferences and how he allocates his budget between food and clothing. The statements provided do not account for these nuances, making them incorrect.

Joe Consumes 10 Units of Food and 12 Units of Clothing.Since