Suppose the demand curves for goods A, B, and C have the following functional forms, where Q denotes quantity demanded, P denotes price, and M denotes income.

QA = 120 - 3.5PA - 6PB + 14M
QB = 100 - 2PB + 3PC + 1.1M
QC = 1500 - 0.5PC - 300M

Based on these demand curves, which of the following goods are known to be inferior goods?

Question

Suppose the demand curves for goods A, B, and C have the following functional forms, where Q denotes quantity demanded, P denotes price, and M denotes income. 

QA = 120 - 3.5PA - 6PB + 14M
QB = 100 - 2PB + 3PC + 1.1M
QC = 1500 - 0.5PC - 300M

Based on these demand curves, which of the following goods are known to be inferior goods?

anonymous · Answer

C is an inferior good. By definition, the higher one's income, the less of that good you'll get. Think of like steak as being a luxury good and potatoes being an inferior good. As your income rises (M) you will buy less and less potatoes (hence why the sign is negative for function QC) and buy more of another good like steaks