Inferior goods typically obey the law of demand because the substitution effect tends to dominate the income effect.

Question

Quizplus · Accepted Answer

Inferior goods are those which individuals buy less of as their income rises. As income increases, people switch to superior substitute products. Because of this, the substitution effect of purchasing a more expensive but higher quality product tends to dominate the income effect, resulting in decreased demand for inferior goods as income increases. Thus, the law of demand holds true for inferior goods.

Inferior Goods Typically Obey the Law of Demand Because the Substitution