The direction of the income effect depends on whether the good is a normal or an inferior good.

Question

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The income effect refers to the change in the quantity demanded of a good due to a change in income. The direction of the income effect depends on whether the good is a normal or an inferior good. For a normal good, an increase in income will lead to an increase in the quantity demanded (positive income effect), and a decrease in income will lead to a decrease in the quantity demanded (negative income effect). For an inferior good, an increase in income will lead to a decrease in the quantity demanded (negative income effect), and a decrease in income will lead to an increase in the quantity demanded (positive income effect). This statement is true. The income effect refers to the change in consumption of a good or service as a result of a change in income. For normal goods, as income increases, people generally demand more of the good, resulting in a positive income effect. For inferior goods, as income increases, people demand less of the good, resulting in a negative income effect.

The Direction of the Income Effect Depends on Whether the Good