The demand curve for corn is downward sloping. If the price of corn, an inferior good, falls,
A) the income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
B) the income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded.
C) both the income and substitution effects reinforce each other to increase the quantity demanded.
D) the income and substitution effects offset each other, but the price effect of an inferior good leads you to buy less corn.

Question

Quizplus · Accepted Answer

For an inferior good, the income effect leads to a decrease in quantity demanded when income rises, but when the price falls, the substitution effect (which leads to an increase in quantity demanded) is stronger, resulting in a net increase in quantity demanded.

The Demand Curve for Corn Is Downward Sloping