Consider a downward-sloping demand curve.When the price of an inferior good decreases, the income and substitution effects
A)work in the same direction to increase quantity demanded.
B)work in the same direction to decrease quantity demanded.
C)work in opposite directions and quantity demanded increases.
D)work in opposite directions and quantity demanded decreases.

Question

Quizplus · Accepted Answer

For an inferior good, the substitution effect (which always increases quantity demanded when price decreases) and the income effect (which decreases quantity demanded for inferior goods when income effectively increases due to the price drop) work in opposite directions. However, the substitution effect typically dominates, leading to an increase in quantity demanded.

Consider a Downward-Sloping Demand Curve