In Many Developing Countries There Are Sudden Leaps in Consumption

question 6

Essay

In many developing countries there are sudden leaps in consumption from one good to another. An example is transport. At low levels of GDP, people often use bicycles or motor scooters. As income rises, there is often a dramatic switch to motor cars, such that bicycles and scooters are much rarer. How can these jumps be explained in terms of normal and inferior goods?

---

Definitions:

Equipment

Physical assets used in the operation of a business, often requiring significant capital investment.

Initial Cost

Refers to the initial expenditure or investment required to start a project, acquire an asset, or launch a business operation.

Initial Cash Flow

The amount of money spent or received at the start of a project or investment, often used to calculate net present value.

Repairs

Actions taken to restore something damaged or deteriorated to a good or sound condition.