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If the commodity is inferior then the Income Effect (I.E) and the Substitution Effect (S.E):

A. Both move together and reinforce each other

B. One moves and the other remains constant

C. Move in the opposite direction and neutralize each other

D. Both remain constant

Correct Answer : C.


If a good is inferior, substitution effect and income effect move in opposite directions. The combined effect is indeterminate. When price rises, the substitution effect leads to a drop in quantity demanded, but the income effect is opposite. When price falls, the substitution effect leads to a drop in quantity demanded, but the income effect is opposite.}

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