When moving along a compensated demand curve, the income effect is
A)positive for an inferior good
B)positive for a normal good
C)negative for a normal good
D)zero for both normal and inferior goods

Question

Quizplus · Accepted Answer

The compensated demand curve holds utility constant by adjusting income to offset the price change, thus eliminating the income effect. This means the income effect is zero for both normal and inferior goods when moving along a compensated demand curve.

When Moving Along a Compensated Demand Curve, the Income Effect