If the income elasticity of potatoes is -0.7,then the income effect caused by a price decrease of potatoes
A)tends to increase the consumption of potatoes.
B)tends to decrease the consumption of potatoes.
C)is less than the substitution effect.
D)None of the above.

Question

Quizplus · Accepted Answer

Potatoes are an inferior good since the income elasticity is negative. A decrease in price increases real income, leading to a decrease in consumption due to the negative income effect.

If the Income Elasticity of Potatoes Is -0