Multiple Choice
The demand curve for corn is downward sloping.What happens if the price of corn, an inferior good, falls?
A) The income effect which causes you to reduce your corn purchases is smaller than the substitution effect which causes you to increase your corn purchases, resulting in a net increase in quantity demanded.
B) The income effect which causes you to increase your corn purchases is larger than the substitution effect which causes you to reduce your corn purchases, resulting in a net increase in quantity demanded.
C) Both the income and substitution effects reinforce each other to increase the quantity demanded.
D) The income and substitution effects offset each other, but the price effect of an inferior good leads you to buy less corn.
Correct Answer:
Verified
Correct Answer:
Verified
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