Question

Corey receives some utility from consuming a frozen dinner (an inferior good) but would much rather purchase healthier food (a normal good). Suppose the price of a frozen dinner increases and the quantity that Corey purchases increases. Assume that a frozen dinner is not a Giffen good. Which effect causes Corey's quantity demanded of a frozen dinner to increase?

Answer 1

Answer:

The effect that causes Corey's quantity demanded of a frozen dinner to increase is known as income effect

Explanation:

Income effect refers to the change in consumption pattern or in the amount of the good consumed as a result of changes in the consumer's utility and purchasing power. Income effect can be positive or negative.

Here, Corey derives some utility from consuming a frozen dinner (an inferior good). Therefore, as the price increases, the income effect will induce Corey (the consumer) to purchase more.