CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

In the case of an inferior good with a decrease in its own price, which of the following statements is most likely true?
A. Both the substitution and income effects lead to an increase in the quantity purchased.
B. The substitution effect leads to an increase in the quantity purchased while the income effect leads to a decrease.
C. The income effect leads to an increase in the quantity purchased while the substitution effect leads to a decrease.
Explanation: The substitution effect overwhelms the income effect, leading to an overall effect of increased quantity purchased.

User Contributed Comments 1

User Comment
aleakos Does the income effect decrease the quantity purchased because it is an inferior good, and thus the decrease in price leads to an increase in income and decrease in quantity demanded for an inferior good?
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