If a good is inferior and its price decreases,
A)the income effect will be positive and the substitution effect will be positive.
B)the income effect will be negative and the substitution effect will be negative.
C)the income effect will be positive and the substitution effect will be negative.
D)the income effect will be negative and the substitution effect will be positive.

Question

Quizplus · Accepted Answer

For an inferior good, when its price decreases, the substitution effect (which makes the good more attractive relative to others because it's now cheaper) is positive, leading to an increase in quantity demanded. However, the income effect (which reflects the change in consumption as the consumer feels richer due to the price drop) is negative for an inferior good, as consumers will buy less of it as they feel wealthier.

If a Good Is Inferior and Its Price Decreases