When the price of an inferior good falls, the substitution effect contributes to _____ in the quantity demanded, and the income effect _____ the substitution effect.
A) a decrease; reinforces
B) an increase; reinforces
C) an increase; opposes
D) a decrease; opposes

Question

Quizplus · Accepted Answer

The substitution effect always leads to an increase in quantity demanded when the price falls. For inferior goods, the income effect works in the opposite direction, reducing the quantity demanded as income effectively increases.

When the Price of an Inferior Good Falls, the Substitution