For a normal good,the income effect
A)is negative and the substitution effect is positive.
B)reinforces the substitution effect.
C)is positive and the substitution effect is negative.
D)is equal and opposite to the substitution effect.
E)is zero.

Question

Quizplus · Accepted Answer

The income effect and the substitution effect work in the same direction for normal goods, reinforcing each other. As income increases, the consumer can afford to buy more of the good, which leads to a positive income effect. This increase in demand may lead to a rise in the price of the good, leading to a negative substitution effect, where the consumer switches to a substitute good. However, in the case of a normal good, the income effect is stronger than the substitution effect, resulting in an overall increase in quantity demanded.

For a Normal Good,the Income Effect