When the price of an inferior good decreases,
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

When the price of an inferior good decreases, the income effect encourages the consumer to purchase less of the good because their income level has stayed the same. However, the substitution effect encourages the consumer to purchase more of the good because it has become relatively cheaper compared to other goods. Therefore, the net effect is that the consumer purchases more of the good, but primarily due to the substitution effect.

When the Price of an Inferior Good Decreases