Question

Assume that consumers consider potatoes to be an inferior good, but consider rice to be a normal good. An increase in consumers’ incomes will most likely affect the equilibrium price and quantity of potatoes and rice in which of the following ways?


Potatoes Rice
Price Quantity Price Quantity
Decrease Decrease Increase Increase
Option A,Table with 2 columns and 3 rows.Row 1: Column 1, 'Potatoes'; Column 2, 'Rice' Row 2: Column 1, 'Price'; Column 2, 'Quantity' Row 3: Column 1, 'Decrease'; Column 2, 'Decrease'

a

Potatoes Rice
Price Quantity Price Quantity
Decrease Increase Increase Decrease
Option B,Table with 2 columns and 3 rows.Row 1: Column 1, 'Potatoes'; Column 2, 'Rice' Row 2: Column 1, 'Price'; Column 2, 'Quantity' Row 3: Column 1, 'Decrease'; Column 2, 'Increase'

b

Potatoes Rice
Price Quantity Price Quantity
Decrease Decrease Decrease Decrease
Option C,Table with 2 columns and 3 rows.Row 1: Column 1, 'Potatoes'; Column 2, 'Rice' Row 2: Column 1, 'Price'; Column 2, 'Quantity' Row 3: Column 1, 'Decrease'; Column 2, 'Decrease'

c

Potatoes Rice
Price Quantity Price Quantity
Increase Increase Decrease Decrease
Option D,Table with 2 columns and 3 rows.Row 1: Column 1, 'Potatoes'; Column 2, 'Rice' Row 2: Column 1, 'Price'; Column 2, 'Quantity' Row 3: Column 1, 'Increase'; Column 2, 'Increase'

d

Potatoes Rice
Price Quantity Price Quantity
Increase Decrease Increase Decrease

Answer 1

Answer: Option A.

Reason: Potatoes are an inferior good, so higher income reduces demand for potatoes → demand curve shifts left → equilibrium price and quantity both fall. Rice is a normal good, so higher income increases demand → demand curve shifts right → equilibrium price and quantity both rise.