When the price of an inferior good falls, the substitution effect leads to_________ in the quantity purchased and the income effect leads to_________ in the quantity purchased.

Question

Quizplus · Accepted Answer

The substitution effect always leads to an increase in quantity purchased when the price falls, as consumers substitute the cheaper good for others. For inferior goods, the income effect leads to a decrease in quantity purchased because as consumers feel effectively richer, they buy less of the inferior good and more of other goods.

When the Price of an Inferior Good Falls, the Substitution