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Economics (AS & A Level) · May / June 2021 · Paper 32 · Question 5

9708Indifference curves and budget lines

Which statement correctly describes the result of a price increase for an inferior good?

  1. ABoth the substitution effect and the income effect cause the consumer to buy less of the good.
  2. BBoth the substitution effect and the income effect cause the consumer to buy more of the good.
  3. CThe substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good.
  4. DThe substitution effect causes the consumer to buy more of the good and the income effect causes the consumer to buy less of the good.

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Correct answer: C. The substitution effect causes the consumer to buy less of the good and the income effect causes the consumer to buy more of the good.

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