Which of the following might explain how a price decrease might cause a decrease in quantity demanded and an upward-sloping demand curve?
Which of the following might explain how a price decrease might cause a decrease in quantity demanded and an upward-sloping demand curve? Correct Answer The good is inferior and the income effect is stronger than the substitution effect.
A-Income and substitution effects work in opposite directions for inferior goods. A lower price prompts a substitution effect, increasing quantity demanded of the good. A lower price increases purchasing power, and for an inferior good, it decreases consumption. If the income effect outweighs the substitution effect, we can see an upward-sloping demand curve.