For inferior goods
A) the substitution and income effects of a price increase will both decrease the quantity of the good demanded.
B) the substitution and income effects of a price increase will both increase the quantity of the good demanded.
C) the substitution effect of a price increase will increase the quantity of the good demanded while the income effect of a price increase will decrease the quantity of the good demanded.
D) the substitution effect of a price increase will decrease the quantity of the good demanded while the income effect of a price increase will increase the quantity of the good demanded.

Question

Quizplus · Accepted Answer

For inferior goods, when the price increases, the substitution effect causes consumers to buy less of the good because it becomes relatively more expensive compared to substitutes. However, the income effect, which reflects the change in purchasing power, leads consumers to buy more of the inferior good because they feel poorer and thus are more likely to buy cheaper goods.

For Inferior Goods