The correct answer is A. In case of inferior goods, the income effect is negative, although the substitution effect is positive.
An inferior good is a good whose demand decreases when consumers’ income increases. This is because consumers tend to substitute other, more desirable goods for inferior goods when they have more money to spend.
The income effect is the change in the quantity demanded of a good due to a change in income. The substitution effect is the change in the quantity demanded of a good due to a change in the relative price of the good.
For inferior goods, the income effect is negative because consumers demand less of the good when their income increases. This is because they can now afford to buy more desirable goods.
The substitution effect for inferior goods is positive because consumers will substitute away from inferior goods when their relative price increases. This is because they can now afford to buy more desirable goods.
Therefore, the overall effect of a change in income on the demand for an inferior good is a decrease in demand, because the negative income effect outweighs the positive substitution effect.