Assume that the price of good $x$ increases. If x is an inferior good, the income effect alone leads to a decrease in consumption of good x.

Question

Quizplus · Accepted Answer

For an inferior good, the income effect implies that as the price of the good increases (and thus effectively reducing the consumer's purchasing power), the consumer might actually consume more of the inferior good, not less, because it becomes a more attractive option compared to more expensive substitutes.

Assume That the Price of Good xxx Increases If X Is an Inferior Good, the Income Effect

Assume That the Price of Good $x$ Increases If X Is an Inferior Good, the Income Effect