Under what circumstances is the demand curve upward-sloping?
A)When the good is a normal good.
B)When the good is an inferior good and the substitution effect outweighs the income effect.
C)When the good is an inferior good and the income effect outweighs the substitution effect.
D)The demand curve can never be upward-sloping.

Question

Quizplus · Accepted Answer

An upward-sloping demand curve occurs only when a good is inferior and the income effect outweighs the substitution effect. This means that as the price of the good decreases, consumers buy less of it because they consider it to be a lower quality or less desirable good, resulting in a decrease in the quantity demanded. This phenomenon is known as the Giffen Effect. When the good is an inferior good, it means that as income increases, people will switch to buying a different (usually higher quality) good. However, in certain cases, the income effect of an increase in income outweighs the substitution effect, which means that as income increases, people actually buy more of the inferior good. This results in an upward-sloping demand curve for the inferior good.

Under What Circumstances Is the Demand Curve Upward-Sloping