Suppose hamburger is an inferior good,but not a Giffen good,for Bob.If the price of hamburgers increases,
A)the income effect is greater than the substitution effect.
B)the income effect is smaller than the substitution effect.
C)consumption of hamburger will increase.
D)We are unable to judge the change of hamburger consumption.

Question

Quizplus · Accepted Answer

Since hamburger is an inferior good, an increase in its price will lead to a decrease in the consumption of hamburger. However, since it is not a Giffen good, the income effect will be smaller than the substitution effect. This means that the decrease in consumption due to the increase in price will be driven more by the fact that consumers will substitute hamburger with other goods that have become relatively cheaper, rather than by the fact that their purchasing power has decreased. Therefore, the income effect is smaller than the substitution effect.

Suppose Hamburger Is an Inferior Good,but Not a Giffen Good,for