Asked by
Christopher Amponsah
on Dec 08, 2024
Verified
If the price of an inferior good falls, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good.
A) more; more
B) more; less
C) less; more
D) less; less
Income Effect
A change in the quantity demanded of a good or service as a result of a change in real income (purchasing power).
Inferior Good
A type of good for which demand declines as the income of individuals or the economy increases, opposite to normal goods.
Substitution Effect
The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute a cheaper good for a more expensive one.
- Acquire understanding of how the income and substitution effects account for consumer responses to price fluctuations in normal and inferior goods.
- Distinguish between the notions of inferior and normal goods, and understand how shifts in income affect their demand.
Verified Answer
NC
Learning Objectives
- Acquire understanding of how the income and substitution effects account for consumer responses to price fluctuations in normal and inferior goods.
- Distinguish between the notions of inferior and normal goods, and understand how shifts in income affect their demand.