If the substitution effect of a lowered price is partly or fully offset by the income effect, we know that the good in question is
A) a complementary good.
B) an inferior good.
C) a luxury good.
D) a normal good.

Question

Quizplus · Accepted Answer

If the substitution effect of a lowered price is partly or fully offset by the income effect, it means that as the price of the good decreases, the consumer buys more of that good, but they also buy less of other goods because their income has decreased. This is the case for inferior goods, which are goods that people buy less of as they have more income. Therefore, the answer is B, an inferior good.

If the Substitution Effect of a Lowered Price Is Partly