Soup is an inferior good if Select one: a. the demand for soup falls when the price of a substitute for soup rises. b. the demand for soup rises when the price of soup falls. c. the demand curve for soup slopes upward. d. the demand for soup falls when income rises.
The Correct Answer and Explanation is :
The correct answer is d. the demand for soup falls when income rises.
An inferior good is a type of good for which demand decreases as income increases, and demand increases as income decreases. This contrasts with normal goods, for which demand increases as income rises and decreases as income falls.
Here’s why the correct answer is d:
- When people’s income increases, they can afford to purchase more expensive goods, often replacing inferior goods with higher-quality or more expensive alternatives. For example, as incomes rise, people might choose to buy gourmet meals, dining out, or other premium products instead of a cheaper item like soup, especially if it was once seen as a low-cost substitute.
- Therefore, if the income level of consumers rises, the demand for soup (in this case, an inferior good) falls because people shift to superior alternatives.
Let’s examine the other options:
- a. the demand for soup falls when the price of a substitute for soup rises: This statement is describing a situation where the demand for a good is influenced by the price of a substitute. It doesn’t relate to the concept of an inferior good, but rather describes the normal relationship between substitute goods, where the demand for a good increases if the price of a substitute rises.
- b. the demand for soup rises when the price of soup falls: This is a basic law of demand, not specific to inferior goods. It simply states that when the price of a good falls, its demand typically rises, which is a normal behavior for most goods, regardless of whether they are inferior or not.
- c. the demand curve for soup slopes upward: This statement would describe an exception to the law of demand, where an increase in price leads to an increase in demand (typically seen in Giffen goods, not inferior goods).
Thus, the key characteristic of inferior goods is that their demand decreases as consumers’ income increases, making d the correct choice.