Question

Just after the price of canned tuna fish fell, Isabelle got a raise. She wound up buying less canned tuna. How can we explain this?

a)For Isabelle, canned tuna is an inferior good, and the leftward shift of her demand curve more than offset the movement down and to the right along her demand curve. b) For Isabelle, canned tuna is a normal good, and the rightward shift of her demand curve reinforced the movement down and to the right along her demand curve.
c) For Isabelle, canned tuna is an inferior good, and the rightward shift of her demand curve more than offset the movement up and to the left along her demand curve.
d) For Isabelle, canned tuna is a normal good, and the leftward shift of her demand curve more than offset the movement up and to the right along her demand curve.

Answer 1

Isabelle's reduction in canned tuna consumption suggests that it's an inferior good for her, as the negative income effect (shift of demand curve to the left) was stronger than the positive substitution effect (movement along the demand curve).

Step-by-step explanation:

The correct answer to explain Isabelle's reduction in canned tuna purchases despite a price decrease and an income increase is: a) For Isabelle, canned tuna is an inferior good, and the leftward shift of her demand curve more than offset the movement down and to the right along her demand curve.

Since the fall in price would normally result in a movement down and to the right along the demand curve (indicating higher quantity demanded), the fact that Isabelle bought less indicates that the income effect (her raise) caused the demand curve to shift left. Inferior goods are those for which demand falls as income increases. This scenario implies that, due to her raise, Isabelle could now afford better-quality goods than canned tuna, hence the decrease in quantity demanded.