As always the substitution effect works to increase consumption when price falls but in this case the income effect worked to reduce consumption when price fell. Because the two effects work in opposite directions, all else being equal, inferior goods will always be more inelastically demanded than normal goods.
- RO - RN is the total change in demand due to the price decrease
- RO - RSis the change due to the substitution effect
- RS - RN is the change due to the income effect.
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