If the economy booms and incomes rise, what happens in the markets for inferior goods?

• A. Prices and quantities both rise
• B. Prices and quantities both fall
• C. Prices rise and quantities fall
• D. Prices fall and quantities rise

Answer: (B)

Verified step by step guidance

1. Understand the definition of inferior goods: Inferior goods are those goods for which demand decreases as consumer income rises, and conversely, demand increases as consumer income falls.
2. Analyze the effect of an economic boom: In an economic boom, consumer incomes generally rise, leading to a decrease in demand for inferior goods because consumers can now afford to buy more normal or superior goods.
3. Apply the demand and supply model: With a decrease in demand for inferior goods, the demand curve shifts to the left. This shift typically results in a lower equilibrium price and a lower equilibrium quantity in the market for inferior goods.
4. Consider the options given: The correct scenario for inferior goods when incomes rise is that both prices and quantities fall, as the demand decreases.
5. Conclude with the correct answer: Based on the analysis, the correct answer is that prices and quantities both fall in the markets for inferior goods when the economy booms and incomes rise.