When the price of an inferior good increases,
a. both the income and substitution effects encourage the consumer to purchase more of the good.
b. both the income and substitution effects encourage the consumer to purchase less of the good.
c. the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
d. the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.
Answer: c. the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
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According to the quantity theory of money, the quantity of money determines the
a. interest rate. b. level of real output. c. price level. d. level of employment.
A monopsonist's marginal factor cost (MFC) curve lies above its supply curve because the firm must:
a. lower the product price to sell more. b. increase the price of its product to sell more. c. decrease the factor price to hire more. d. lower the factor price to hire more. e. none of these.
In order to minimize deadweight loss generated by taxation, a tax should be placed on goods that are:
A. price elastic. B. price inelastic. C. expensive. D. popular.
The most effective and frequently used tool the Fed has at its disposal to change the economy's money supply is
a. open market operations b. the discount rate c. the legal reserve requirement d. the federal funds rate e. the margin requirement