The Income Effect for an Inferior Good

question 400

Multiple Choice

The income effect for an inferior good

• A) is negative.
• B) is zero.
• C) is positive.
• D) could be negative, zero, or positive.

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Definitions:

Income

Earnings acquired, frequently on a steady basis, through employment or investing activities.

Consumer Equilibrium

The point at which the quantity of goods and services a consumer chooses to buy equates to the maximum satisfaction or utility for their budget.

Budget Constraint

The limitation on the consumption bundles that a consumer can afford based on their income and the prices of goods.

Consumer Equilibrium

The point at which an individual's income is perfectly balanced with their consumption preferences, maximizing utility.