Question

Inferior goods are those whose income effect is __________.

• A. zero
• B. positive
• C. negative
• D. none of the above

Answer 1

Answer: (C)

An inferior good is a good whose demand decreases when consumer income rises.

A normal good's demand increases when the income rises, thus its income effect is positive.

Hence, the income effect for inferior good is negative.

For example as a consumer's income increases, his/her demand of the cheap cars will decrease, while demand for costly cars will increase. Here the cheap car is an inferior good for that consumer.