The income effect of a decrease in the price of macaroni and cheese (assume this is an inferior good)results in
A)a decrease in the demand for macaroni and cheese.
B)an increase in the quantity of macaroni and cheese demanded.
C)a decrease in the quantity of macaroni and cheese demanded.
D)an increase in the demand for macaroni and cheese.

Question

Quizplus · Accepted Answer

Macaroni and cheese is an inferior good, which means that its demand decreases as income increases. A decrease in the price of macaroni and cheese leads to an increase in the quantity demanded due to the substitution effect, but the income effect works in the opposite direction, leading to a decrease in the quantity demanded. Therefore, the net effect is a decrease in the quantity of macaroni and cheese demanded.

The Income Effect of a Decrease in the Price of Macaroni