Our consumer is so poor and already spends so much of her money on grain that when its price increases she is made much worse off. As a result she has to give up most of the other things she was purchasing before like vegetables, meat, seasonings, etc. and use her income to buy even more grain. Even though it's more expensive than before, it's still the cheapest food available so it becomes almost all she buys.

    The above is just another way of saying that grain is inferior but that the income effect is very large. Let's see how she would behave if we could compensate her for the price change.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved