Answer to Question #104151 in Microeconomics for Tejvar

Question

The average 15-year-old purchases 12 CDs and 15 cheese pizzas in a typical year. If cheese pizzas are inferior goods, would the average 15-year-old be indifferent between receiving a $30 gift certificate at a local music store and $30 in cash? Explain

Answer 1

Yes. For inferior goods,cash gifts yield a higher utility than a gift certificate.. The gift certificate at the CD store is as good as money only at the store and not at the Cheese Store.. He gets a higher utility as he would still be able to purchase the exact amount of CDs at the CD store but reduce on their purchase at the cheese store.