In general, the substitution effect is larger than the offsetting income effect for ______ good.
A) an inferior
B) a substitute
C) a normal
D) a Giffen

Question

Quizplus · Accepted Answer

An inferior good is a good for which demand decreases as income increases. The substitution effect for an inferior good is negative, meaning that as the price of the good increases, consumers will substitute away from it. The income effect for an inferior good is also negative, meaning that as income increases, consumers will buy less of the good. However, the substitution effect is typically larger than the income effect for an inferior good, so the overall effect of a price increase is a decrease in demand.

In General, the Substitution Effect Is Larger Than the Offsetting