The demand curve for corn is downward sloping.What happens if the price of corn, an inferior good, falls?
A)The income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
B)The income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded.
C)Both the income and substitution effects reinforce each other to increase the quantity demanded.
D)The income and substitution effects offset each other, but the price effect of an inferior good leads you to buy less corn.

Question

Quizplus · Accepted Answer

When the price of an inferior good like corn falls, the substitution effect (consumers substituting corn for more expensive alternatives because corn is now cheaper) typically outweighs the income effect (where consumers feel richer and might buy less of the inferior good). This leads to a net increase in the quantity demanded of corn.

The Demand Curve for Corn Is Downward Sloping