When the price of an inferior good increases,
A)both the income and substitution effects encourage the consumer to purchase more of the good.
B)both the income and substitution effects encourage the consumer to purchase less of the good.
C)the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
D)the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.

Question

Quizplus · Accepted Answer

For an inferior good, when the price increases, the substitution effect leads consumers to buy less of the good as they switch to cheaper alternatives. However, the income effect may lead them to buy more because the increase in price effectively reduces their real income, and they might consume more of the inferior good as a result.

When the Price of an Inferior Good Increases