Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market?

Question

Quizplus · Accepted Answer

When the income of buyers decreases, demand for an inferior good typically increases because consumers switch from more expensive substitutes to the inferior good. A technological advancement usually leads to an increase in supply due to lower production costs. Both of these changes would likely lead to an increase in the equilibrium quantity. However, the effect on price is ambiguous because the increase in demand could push prices up, while the increase in supply could pull prices down.

Suppose the Income of Buyers in a Market for an Inferior