Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

Question

Quizplus · Accepted Answer

When the price of an inferior good like beer falls, the substitution effect leads to the consumer buying more of it because it becomes relatively cheaper compared to other goods. However, the income effect, for an inferior good, means that as the consumer effectively becomes wealthier due to the price drop, they may buy less of the inferior good, opting instead for more of a 'normal' good.

Assume That Beer Is an Inferior Good