When the Price of an Inferior Good Increases

question 516

Multiple Choice

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.

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Definitions:

ATC Curve

The ATC Curve, or Average Total Cost Curve, graphically represents the average cost per unit of output at different levels of production, typically showing a U-shaped curve due to the influence of fixed and variable costs.

Profit-Maximizing

The manner in which a company ascertains the ideal pricing and production scale to ensure peak profit.

Firm

A business organization, such as a corporation or partnership, which sells goods or services in exchange for money.

AFC

Average Fixed Cost, the fixed costs of production divided by the quantity of output produced.