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Question

Inferior goods are those whose income effect is __________.


A
negative
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B
positive
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C
zero
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D
none of the above
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Solution

The correct option is C negative

An inferior good is a good whose demand decreases when consumer income rises. 

A normal good's demand increases when the income rises, thus its income effect is positive.

Hence, the income effect for inferior good is negative.

For example as a consumer's income increases, his/her demand of the cheap cars will decrease, while demand for costly cars will increase. Here the cheap car is an inferior good for that consumer.


Economics

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