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When the price of an inferior good falls,the substitution effect contributes to a(n) _____ in the quantity demanded,and the income effect _____ the substitution effect.
A) decrease;reinforces
B) increase;reinforces
C) increase;opposes
D) decrease;opposes
Substitution Effect
The change in consumption patterns due to a change in relative prices, where consumers replace more expensive items with less costly alternatives.
Inferior Good
Items for which demand falls when the income levels of buyers go up, unlike standard goods that see an increase in demand with rising incomes.
Income Effect
How shifts in the financial status of individuals or whole economies affect their purchasing desires for specific goods or services.
- Acquire insights into the theory of income and substitution effects and how they affect consumer preferences.
- Distinguish between the characteristics of normal goods and inferior goods, including the distinct ways their demand curves respond.
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Learning Objectives
- Acquire insights into the theory of income and substitution effects and how they affect consumer preferences.
- Distinguish between the characteristics of normal goods and inferior goods, including the distinct ways their demand curves respond.
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