The income effect of a decrease in the price of potatoes, an inferior good, is a(n) _____

Question

Quizplus · Accepted Answer

The income effect of a decrease in the price of an inferior good like potatoes would lead to an increase in the purchasing power of consumers, which would cause them to switch to a higher quality substitute. As a result, the quantity demanded of potatoes would decrease, making option B the correct answer. Option A and E are incorrect because a change in the price of potatoes would not directly affect the demand for onions. Option C is incorrect because a decrease in the price of potatoes would not increase the demand for potatoes, but only the quantity demanded. Option D could be perceived as correct, but it does not explain the underlying reason for the increase in the quantity demanded.

The Income Effect of a Decrease in the Price of Potatoes