For a normal good, the income effect
A) moves in the same direction as the substitution effect.
B) moves in the opposite direction of the substitution effect.
C) negates the substitution effect, leaving the quantity demanded unchanged.
D) is irrelevant.

Question

Quizplus · Accepted Answer

For a normal good, when income increases, the demand for the good increases as well, which moves in the same direction as the substitution effect. The substitution effect occurs when a price change makes a good more or less expensive relative to substitutes, leading to an increase or decrease in demand for the good. For normal goods, both the income and substitution effects typically lead to an increase in quantity demanded when the good becomes relatively cheaper.

For a Normal Good, the Income Effect