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8 October, 14:09

Consider the following scenario:

X is an inferior good. What would happen to the price of X if the cost of production of X increased at the same time as the consumers incomes (increased).

Options:

O the price would definitely decrease

O the price would definitely increase

O the effect on the price is be unknown because we don't know which shift dominates.

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Answers (1)
  1. 8 October, 15:59
    0
    The price would definitely increase

    Explanation:

    Inferior good are good that of low quality which are consumed by low income earners and with an increase in the income of the consumer of an inferior good, the demand for the good reduces.

    Note: the demand for inferior good reduces because of increase in consumers income, so this has nothing to do with the price.

    On an economic sense, increase in cost of production, will definitely lead to an increase in the price of the goods produced.
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