When the economy experiences an overall decrease in income and coffee is considered an inferior good, what happens to the price and quantity of coffee?

When analyzing the impact of a decrease in income on the market for an inferior good, the relationship between consumer income and demand must be considered. Inferior goods are characterized by a negative correlation with income: as income decreases, the demand for inferior goods tends to increase, because consumers turn to these less expensive alternatives.

In this scenario, when the economy experiences an overall decrease in income, consumers will likely buy more coffee (the inferior good) since they are substituting away from more expensive items. Consequently, this increase in demand for coffee will lead to upward pressure on its price.

However, the overall effect on price can depend on the degree to which the supply of coffee can respond to this change in demand. If the supply remains relatively constant in the short term, the increase in demand would generally lead to an increase in the quantity sold and to an increase in price.

The quantity of coffee will unambiguously increase due to increased demand as a result of lower incomes. However, the price may either increase or remain stable depending on supply constraints, making it ambiguous. Thus, the conclusion is that the quantity of coffee will definitely increase, while the price could either rise or hold steady, which aligns with the selected answer.