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Soloha48 [4]
2 years ago
13

For most normal goods the income effect and the substitution effect work in the same direction; so when the price of a good fall

s, both the income and substitute effects lead to a higher quantity demanded. How would this change if the good is an inferior good?
Business
1 answer:
bezimeni [28]2 years ago
8 0

Answer:

The income effect and substitution effect work in opposite directions and income effect is dominant.

Explanation:

In case of a normal good, both the income effect as well as substitution effect work in the same direction. A fall in the price of a product will increase the purchasing power of the consumer so its quantity demanded will increase.  

The consumers will also prefer the cheaper good so the substitution effect will cause the quantity demanded to increase.  

In case of an inferior good, however, income elasticity is negative. The income effect and substitution effect work in opposite directions.  

A price decrease in the case of an inferior good will increase the real income and purchasing power of the consumer. This will cause the quantity demanded of the inferior good to decline as the consumer will prefer a substitute normal good.

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If a certain household earns and spends $24,000 per year and, on the average, holds a money balance of $6,000, then the velocity
solong [7]

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Learn more about household here:brainly.com/question/9417571
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4 0
1 year ago
During 2021, Falwell Inc. had 610,000 shares of common stock and 61,000 shares of 9% cumulative preferred stock outstanding. The
Korvikt [17]

Explanation:

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Which of these resources do
xeze [42]

Answer:

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