Paper 2 · June 2025 · Price Elasticity of Demand
An inferior good is one with a negative income elasticity of demand: quantity demanded falls as income rises. When the price of such an inferior good falls, the substitution effect alone (real income held constant) causes quantity demanded of that good to
Adecrease, because consumers switch entirely to other goods
Bincrease only if the good is also classed as a luxury good
Cincrease, because the good is now relatively cheaper than its substitutes
Dstay unchanged in the short run, because economists treat inferior goods as having no substitution effect worth noting
Explanation
The substitution effect always pushes quantity demanded of a good up when its own price falls relative to substitutes, regardless of whether the good is normal or inferior; the good's inferior status only shows up in the separate income effect.
Derived from ZIMSEC A-level Economics Paper 2 (Data Response), June 2025, Q1