Suppose you are a government analyst and you think beans are particularly nourishing.You decide to subsidize beans in order to encourage people to eat more of them.(By subsidizing an item,consumers pay a lower price. )After you successfully lower bean prices,you notice that consumption of beans has fallen.What went wrong?
A)The substitution effect caused people to substitute ramen noodles and rice for beans.
B)The income effect caused people's real income to fall so they could no longer afford as much food.
C)The income effect caused people's real income to rise so they purchased less of what they considered to be inferior goods.
D)Demand for beans is price inelastic.

Question

Quizplus · Accepted Answer

When the price of beans is subsidized, consumers' real income effectively increases. If beans are considered an inferior good, people may buy less of them as their real income rises, opting instead for more preferred alternatives.

Suppose You Are a Government Analyst and You Think Beans