Suppose the price of an inferior good X, that follows the law of demand, increases. 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 as the price of good X increases, consumers will purchase less of it, substituting it with other goods. The total effect, which includes both the substitution and income effects, results in a decrease in consumption of good X for an inferior good when its price rises.

Suppose the Price of an Inferior Good X, That Follows