Biscuits are an inferior good for Aster,then if their price falls,she
A)will definitely buy more biscuits
B)will definitely buy fewer biscuits
C)may buy more biscuits
D)will buy fewer biscuits if the substitution effect is larger than the income effect
E)will buy more biscuits if the substitution effect is larger than the income effect

Question

Quizplus · Accepted Answer

The substitution effect suggests that Aster will buy more biscuits because they are now relatively cheaper than other goods. The income effect suggests that Aster will buy fewer biscuits because she is now wealthier and can afford to buy more expensive goods. If the substitution effect is larger than the income effect, then Aster will buy more biscuits.

Biscuits Are an Inferior Good for Aster,then If Their Price