FIGURE 6- 4
-Refer to Figure 6- 4. For both goods, the price increases from P0 to P1. The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C. Good X is certainly a(n) good.
A) normal
B) Giffen
C) inferior
D) luxury
E) necessity

Question

FIGURE 6- 4
-Refer to Figure 6- 4. For both goods, the price increases from P0 to P1. The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C. Good X is certainly a(n) good.
A) normal 
B) Giffen 
C) inferior 
D) luxury 
E) necessity

Quizplus · Accepted Answer

The substitution effect moves the quantity demanded from A to B, and the income effect moves it from B to C. Since the income effect leads to a decrease in quantity demanded, Good X is an inferior good.

FIGURE 6- 4 -Refer to Figure 6- 4. for Both Goods, the Price