If the income effect counteracts the substitution effect, we know that the good in question is a(n)
A)complementary good.
B)inferior good.
C)luxury good.
D)normal good.

Question

Quizplus · Accepted Answer

An inferior good is one for which an increase in income leads to a decrease in demand, which counteracts the substitution effect. This is because consumers switch to better substitutes as their income increases.

If the Income Effect Counteracts the Substitution Effect, We Know