If the price of an inferior good rises,the income effect
A)will have an uncertain effect on consumption of the good,and the substitution effect will decrease consumption.
B)will decrease consumption of the good,and the substitution effect will decrease consumption.
C)and the substitution effect will both increase consumption of the good.
D)and the substitution effect will both decrease consumption of the good.
E)will increase consumption of the good and the substitution effect will decrease consumption.

Question

Quizplus · Accepted Answer

For an inferior good, when the price rises, the income effect leads to an increase in consumption because consumers feel poorer and thus buy more of the cheaper, inferior good. However, the substitution effect leads to a decrease in consumption as consumers switch to other goods that have become relatively cheaper.

If the Price of an Inferior Good Rises,the Income Effect