Chapter 9R, Problem 6MCQ

To determine

The effect of decrease in the prices of inferior goods on consumers’ purchasing power and the effect of income effect on consumers’ buying.

Explanation of Solution

If the price of an inferior good declines, then consumers’ purchasing power will increase because decrease in price of inferior goods provide goods at cheaper rate than other substitute goods. And, consumers will have a greater purchasing power due to lower price of goods and substitution effect. But the income effect causes consumers to buy less of the good because increase in income encourages people to spend on branded or other superior goods.

Therefore, the correct option is d.

Economics Concept Introduction

Introduction:

Inferior goods include generic products such as certain used goods, discounted goods, etc. The purchasing of these goods is adversely affected with the change in income.