Brief Principles of Macroeconomics...
Solutions
Brief Principles of Macroeconomics...
If the economy goes into a recession and incomes fall, what happens in the markets for inferior goods?
a. Prices and quantities both rise.
b. Prices and quantities both fall.
c. Prices rise and quantities fall.
d. Prices fall and quantities rise.
Market for inferior goods.
Option (a):
For an inferior good, demand increases when incomes fall. Due to the increase in quantity demanded, price also increases. Thus, option ‘a’ is correct.
Option (b):
For an inferior good, demand falls (which is the fall in quantity demanded resulting in fall in price) only when incomes rises. So option ‘b’ is incorrect...
Chapter 4 Solutions
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