Suppose the price of good X falls. As a result, the quantity demanded for good X increases for a particular consumer. For this consumer, the substitution effect induced the consumer to purchase more X while the income effect induced the consumer to purchase less X. We can infer that X is a(n)
A)normal good.
B)inferior good.
C)Giffen good.
D)luxury good.

Question

Quizplus · Accepted Answer

The substitution effect of the price decrease caused the consumer to substitute a portion of their income towards good X since it became relatively cheaper than other goods, leading to an increase in quantity demanded for good X. However, the income effect means that the consumer's purchasing power has increased due to the price decrease, causing a decrease in demand for good X if it is an inferior good. Therefore, X must be an inferior good.

Suppose the Price of Good X Falls