If the price of a good rises,then the equilibrium consumption of that good:
A) increases if it is an inferior good.
B) decreases if it is a normal good.
C) remains the same.
D) None of the preceding statements is correct.

Question

Quizplus · Accepted Answer

The law of demand states that when the price of a good rises, the quantity demanded decreases. In an equilibrium situation, the quantity demanded and quantity supplied are equal. Therefore, if the price of a normal good rises, the quantity demanded will decrease to a new equilibrium point. This means that the equilibrium consumption of that good will decrease. If it is an inferior good, however, the opposite occurs, and the equilibrium consumption would increase as the price rises.

If the Price of a Good Rises,then the Equilibrium Consumption