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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 4, Problem 5CQQ
Textbook Problem
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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.

To determine
Market for inferior goods.

Explanation of Solution

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...

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