[amp_mcq option1=”In inferior goods, the income and substitution effects are negative” option2=”In inferior goods, the income and substitution effects are positive” option3=”In case of inferior goods, the income effect is negative although the substitution effect is positive” option4=”In case of inferior goods, the income effect is positive although the substitution effect is negative” correct=”option3″]<\/p>\n
The correct answer is C. In case of inferior goods, the income effect is negative although the substitution effect is positive.<\/p>\n
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 as their income increases.<\/p>\n
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.<\/p>\n
In the case of an inferior good, the income effect is negative because consumers will demand less of the good when their income increases. This is because they can now afford to buy more desirable goods.<\/p>\n
The substitution effect is positive because the good becomes relatively more expensive when income increases. This means that consumers will substitute other, cheaper goods for the inferior good.<\/p>\n
Therefore, the overall effect of a change in income on the demand for an inferior good is negative. This is because the negative income effect outweighs the positive substitution effect.<\/p>\n","protected":false},"excerpt":{"rendered":"
[amp_mcq option1=”In inferior goods, the income and substitution effects are negative” option2=”In inferior goods, the income and substitution effects are positive” option3=”In case of inferior goods, the income effect is negative although the substitution effect is positive” option4=”In case of inferior goods, the income effect is positive although the substitution effect is negative” correct=”option3″]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[],"class_list":["post-43181","post","type-post","status-publish","format-standard","hentry","category-economics","no-featured-image-padding"],"yoast_head":"\n