For inferior goods the substitution effect is:
A)unrelated to the price.
B)negatively related to the price.
C)positively related to the price.
D)ambiguously related to the price.

Question

Quizplus · Accepted Answer

The substitution effect for inferior goods is negatively related to the price. As the price of the inferior good decreases, its relative price to other goods increases, and consumers switch to other goods that they previously could not afford. This leads to a decrease in the quantity demanded of the inferior good.

For Inferior Goods the Substitution Effect Is