Question

In the case of an Inferior good, the Income Effect and the Substitution effect tend to _________.

Move in the opposite direction

Move in the same direction

Cancel one another's effect

Have no impact on the final purchase of a commodity

Which of the following lists the three main properties of indifference curve?

Upward sloping, convex to the origin, and intersect at the origin

Downward sloping, convex to the origin, and do not intersect

Downward sloping, concave to the origin, and do not intersect

Upward sloping, concave to the origin, and do not intersect

Answer 1

The correct answer is 'Option A'.

In the case of inferior goods, the substitution effect and the income effect move in opposite direction. The negative income effect of inferior goods tend to reduce the quantity demanded when there is a fall in price while the substitution effect tend to increase the quantity demanded when there is a fall in price. So, both the income effect and the substitution effect work in opposite direction. Therefore, the correct answer is 'Option A'.

The correct answer is 'Option B'.

Indifference curves shoes the different possible bundles of two goods that can be purchased to maintain a certain level of utility. All the points on the indifference curve represents the combinations that offer same level of utility. An indifference curve is convex to the origin because if diminishing marginal rate of substitution. Two indifference curves can never intersect each other because each indifference curve shows different level of satisfaction and the indifference curves are downward sloping. Therefore, the correct answer is 'Option B'.