Suppose that you manage a supermarket. Assume that peanut butter is an inferior good. What would happen to the price and quantity of peanut butter as customer incomes fall during a recession?

Question

The price and quantity of peanut butter would increase.

The price and quantity of peanut butter would decrease.

The price of peanut butter would increase and quantity of peanut butter would decrease.

There would be no change in the price and quantity of peanut butter.

Answer 1

Since peanut butter is considered an inferior good, its demand would increase as customer incomes fall during a recession. When demand for a good increases, typically, both the equilibrium price and quantity of the good would rise.

Therefore, the correct answer is:

The price and quantity of peanut butter would increase.