Which of the following statements about the income effect and substitution effect is NOT true?
A) The effect of a price decrease on the quantity demanded of an inferior good is theoretically ambiguous.
B) The effect of a price decrease on the quantity demanded of a normal good is theoretically ambiguous.
C) The income effect and substitution effect act in opposite directions on the quantity demanded of an inferior good.
D) The income effect and substitution effect act in the same direction on the quantity demanded of a normal good.

Question

Quizplus · Accepted Answer

The effect of a price decrease on the quantity demanded of a normal good is not theoretically ambiguous; it generally leads to an increase in quantity demanded due to both the income effect and the substitution effect acting in the same direction.

Which of the Following Statements About the Income Effect and Substitution