Question

When the price of an inferior good​ falls, the substitution effect leads to​ ________ in the quantity purchased and the income effect leads to​ ________ in the quantity purchased.

a. an​ increase; an increase
b. a​ decrease; an increase
c. a​ decrease; a decrease
d. an​ increase; a decrease?

Answer 1

When the price of an inferior good falls, the substitution effect leads to an increase in the quantity purchased and the income effect leads to a decrease in the quantity purchased.

An inferior good is something consumers would purchase only if they had more income so if the price falls, customers are able to afford to use this product as a substitute to an item of lower price that they currently purchase.