Question

If the Engle curve for the consumption of good x is decreasing at some income level, then____________.A. The income effect of a price reduction is always positive.B. The income effect of a price reduction may be negative for some price changes.C. The income effect of a price reduction is always negative.C. The good is normal.D. The substitution effect of a price reduction is always negative.

Answer 1

B). The income effect of a price reduction may be negative for some price changes

Step-by-step explanation:

Engle curve is demonstrated as the graphic concept in microeconomics that intends to show the impact of variation in household income on the household expenditure incurred on a specific good or service.

As per the given situation that 'if the Engle curve for the consumption of a specific good called good x is decreasing at some specific income level', then, 'the income effect of a price reduction may be negative for some price changes' as if there is a rise in income the consumption of good x(if it's inferior) may decrease even if the price of the product reduces because the consumer would switch to normal goods. Therefore, in such a case, the income effect could be negative in some cases. Thus, option B is the correct answer.