Which statement is true for a normal good?
A)The income effect dominates the substitution effect.
B)The income effect reinforces the substitution effect.
C)As income increases,consumption decreases.
D)As income increases,consumption remains constant.
E)As price falls,we do not know whether consumption increases or decreases.

Question

Quizplus · Accepted Answer

For a normal good, the income effect reinforces the substitution effect, meaning that as income increases, the consumer will buy more of the good both because they can afford it and because it is relatively cheaper than other goods. Option A is incorrect because the substitution effect can dominate for inferior goods. Option C is incorrect because consumption of a normal good generally increases as income increases. Option D is incorrect because consumption typically increases as income increases. Option E is incorrect because for a normal good, consumption typically increases as the price falls.

Which Statement Is True for a Normal Good