Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will________ and the quantity sold of store brand cereal will _______.

Question

BlackTom AI · Accepted Answer

Question restatement: If store brand cereal is an inferior good and income rises, what happens to its price and the quantity sold?

Option 1: fall; fall. The logic here is that for an inferior good, higher income reduces demand because consumers substitute away from the cheaper inferior option toward more expensive or higher-quality alternatives. A leftward shift in the demand curve lowers the equilibrium price and lowers the equilibrium quantity, assuming the supply curve remains unchanged.

Option 2: fall; rise. This would imply that the price falls while quantity sold increases, which would require a rightward shift in demand or a more elastic supply response that increases quantity at a lower price. However, with an inferior good and higher income, demand should not increase; thus this option misstates the directional impact on quantity.

Option 3: rise; rise. An increase in income causing both the price and quantity to rise would require a rightward shift in demand, which contradicts the behavior of an inferior good. Inferior goods experience weaker or negative demand with higher income, not stronger demand.

Option 4: rise; fall. A scenario where price rises but quantity falls would typically reflect a leftward supply shift or a unique external constraint, but it does not align with the standard effect of an inferior good’s demand decreasing when income increases. This combination mixes the wrong directional effect on price and quantity for the stated income change.

In summary, the correct interpretation is that higher income decreases the demand for an inferior good, leading to lower equilibrium price and lower equilibrium quantity sold; hence the first option describes the consistent outcome.

Assume that store brand cereal is an inferior good. If income rises, then the price of store brand cereal will__ and the quantity sold of store brand cereal will _.

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