If a producer knew his product to be an inferior good and he also knew average household income was falling, he might
A) close down, because inferior goods are the first to be eliminated from household budgets when income falls.
B) keep his output the same.
C) increase output because the demand for his product would rise.
D) cut output immediately because the demand for his product would surely fall.
E) decrease output because the demand for his product would rise.

Question

Quizplus · Accepted Answer

Inferior goods see an increase in demand when household incomes fall, as consumers opt for cheaper alternatives, so the producer might increase output.

If a Producer Knew His Product to Be an Inferior