Which of the following statements is FALSE?
A) When the relative price of a good falls, the substitution effect always leads the consumer to substitute more of that good for the other good.
B) For an inferior good, the income effect is positive.
C) For an inferior good, the income effect offsets the substitution effect.
D) For a normal good, the income effect reinforces the substitution effect.

Question

Quizplus · Accepted Answer

For an inferior good, the income effect is negative, meaning that as income increases, the demand for the inferior good decreases. This is contrary to the statement in option B, which incorrectly claims the income effect is positive for an inferior good.

Which of the Following Statements Is FALSE