Which of the following statements is false?
A)Reducing taxes on interest income might encourage people to save more.
B)Reducing taxes on interest income might reduce saving.
C)A price increase will create income and substitution effects that will both always work to reduce consumption of the good.
D)Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods.

Question

Quizplus · Accepted Answer

A price increase can have both income and substitution effects, but they do not always work in the same direction. The substitution effect typically reduces consumption, but the income effect can increase or decrease consumption depending on whether the good is normal or inferior.

Which of the Following Statements Is False