Suppose the price of an inferior good X, that follows the law of demand, decreases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

Question

Quizplus · Accepted Answer

The substitution effect implies that when the price of good X decreases, it becomes relatively cheaper compared to other goods, leading consumers to buy more of it. The total effect, considering it's an inferior good, still results in an increase in consumption because the income effect (which might lead to buying less of an inferior good as income effectively increases) is outweighed by the substitution effect in this scenario.

Suppose the Price of an Inferior Good X, That Follows