Suppose potatoes are an inferior good and the price of potatoes decreases.Then:
A)the substitution effect will cause a decrease in the consumption of potatoes.
B)the income effect will cause an increase in the consumption of potatoes.
C)the income effect will cause a decrease in the consumption of potatoes.
D)the substitution effect will cause an decrease in the consumption of potatoes and the income effect will cause a decrease in the consumption of potatoes

Question

Quizplus · Accepted Answer

For inferior goods, the income effect works opposite to the substitution effect. When the price of potatoes decreases, the substitution effect leads to increased consumption, but the income effect leads to decreased consumption because potatoes are inferior goods.

Suppose Potatoes Are an Inferior Good and the Price of Potatoes