GENERAL KNOWLEDGE

GK

BUSINESS ECONOMICS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
In the case of an inferior good, the income effect
A
Is equal to the substitution effect
B
Reinforces the substitution effect
C
Partially offsets the substitution effect
D
More than offsets the substitution effect
Explanation: 

Detailed explanation-1: -Answer: In Microeconomics, in the case of inferior goods, the income effect can only partially offset the substitution effect. Hence, the answer in this case would be option a. or Partially offsets the substitution effect.

Detailed explanation-2: -The substitution effect states that when the price of a good decreases, consumers will substitute away from goods that are relatively more expensive to the cheaper good.

Detailed explanation-3: -Answer and Explanation: Giffen goods are inferior goods for which the income effect dominates the substitution effect.

There is 1 question to complete.