Which statement is true for an inferior good?
A)The substitution effect is positive;as price rises,consumption increases.
B)The income effect is absent;as income increases,consumption remains constant.
C)The income effect works in the opposite direction to the substitution effect.
D)The good is of poor workmanship.
E)The income effect works in the same direction as the substitution effect.

Question

Quizplus · Accepted Answer

An inferior good is a type of good whose demand decreases as income of the consumer increases. The income effect in this case works in the opposite direction to the substitution effect. As income rises, consumers switch to superior goods causing a decrease in the consumption of inferior goods. Therefore, choice C is correct. Choices A, B, D and E are incorrect as they do not describe the characteristics of an inferior good.

Which Statement Is True for an Inferior Good