Which statement best characterizes an inferior good?

Which statement best characterizes an inferior good?

• A. Demand increases as income rises.
• B. Demand remains unchanged as income rises.
• C. Demand increases only when prices rise.
• D. Demand decreases as income rises.

Answer: (D)

Inferior goods show a negative relationship between income and demand. When people’s incomes rise, they can afford better alternatives, so they buy less of the cheaper options. That shift away from lower-priced goods as people become wealthier is why the demand falls as income increases. For example, many people might buy fewer cheap staple brands or use cheaper transportation options once their income improves, opting for higher-quality substitutes instead. This negative income effect is what makes the statement about demand decreasing as income rises the best description of an inferior good. The other scenarios describe different patterns: demand rising with income would be a normal good; demand changing only with price changes ignores the income effect; demand staying the same with income changes describes a neutral or income-inelastic good.

Inferior goods show a negative relationship between income and demand. When people’s incomes rise, they can afford better alternatives, so they buy less of the cheaper options. That shift away from lower-priced goods as people become wealthier is why the demand falls as income increases. For example, many people might buy fewer cheap staple brands or use cheaper transportation options once their income improves, opting for higher-quality substitutes instead. This negative income effect is what makes the statement about demand decreasing as income rises the best description of an inferior good. The other scenarios describe different patterns: demand rising with income would be a normal good; demand changing only with price changes ignores the income effect; demand staying the same with income changes describes a neutral or income-inelastic good.