Asked by Angelica Bihasa on Apr 28, 2024
Verified
Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.
A) more; more
B) more; less
C) less; more
D) less; less
Substitution Effect
The change in consumption patterns due to a change in relative prices, holding the consumer's overall utility constant.
Income Effect
The Income Effect describes how changes in an individual's income affect their purchasing capacity and thus their demand for goods and services.
Inferior Good
A type of good for which demand decreases as the income of consumers increases, opposite to normal goods.
- Acquire knowledge on the income effect, substitution effect, and wealth effect related to the concept of consumer choice theory.
- Gain insight into how the classification of items as normal or inferior goods influences consumer buying patterns.
Verified Answer
Learning Objectives
- Acquire knowledge on the income effect, substitution effect, and wealth effect related to the concept of consumer choice theory.
- Gain insight into how the classification of items as normal or inferior goods influences consumer buying patterns.
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