A negative sloped income consumption line indicates that:
A)one of the goods is a Giffen good
B)the two goods are substitutes
C)the two goods are complements
D)one of the goods is normal and the other is inferior.

Question

Quizplus · Accepted Answer

A negative sloped income consumption line indicates that one of the goods is normal (having a negative slope) and the other is inferior (having a positive slope). This is because when income increases, the quantity demanded of the normal good increases while the quantity demanded of the inferior good decreases. Therefore, the line slopes downwards because the price of the inferior good must decrease to compensate for the decrease in quantity demanded, while the price of the normal good increases as demand increases.

A Negative Sloped Income Consumption Line Indicates That