If pasta is an inferior good and if the price of pasta increases,the income effect _________ the quantity demanded,and the substitution effect __________ the quantity demanded.

Question

Quizplus · Accepted Answer

Since pasta is an inferior good, the income effect of a price increase would reduce the quantity demanded (people would buy less of it because they have less purchasing power). The substitution effect, however, would increase the quantity demanded because pasta would now be relatively cheaper than other foods. Therefore, the overall effect on quantity demanded would depend on which effect is stronger. In this case, the substitution effect is expected to be stronger, leading to an increase in quantity demanded.

If Pasta Is an Inferior Good and If the Price