Good A (an inferior good) and Good B (a normal good) are viewed by consumers to be substitute products. Suppose that the price of Good B falls at the same time that consumer income increases. What is the net effect of these two events on equilibrium in the market for Good A?

Question

Quizplus · Accepted Answer

When the price of Good B (a substitute and a normal good) falls, consumers will shift their demand towards Good B from Good A (an inferior good). Additionally, as consumer income increases, demand for Good A will decrease further because it is an inferior good and consumers will buy more of normal goods like Good B. Both effects lead to a decrease in both the equilibrium price and quantity of Good A.

Good a (An Inferior Good) and Good B (A Normal