Which of the following statements concerning income and substitution effects is nottrue?
A)Income and substitution effects cause the demand curve to slope downward.
B)When the price of a good falls,real purchasing power increases and consumers can purchase more of all goods.
C)The substitution effect describes the situation where more of a good whose price has fallen is purchased and less of all other goods is purchased.
D)A price decrease of one good cannot cause the income effect.
E)Income and substitution effects are related to diminishing marginal utility and consumer equilibrium.

Question

Quizplus · Accepted Answer

This statement is not true because a decrease in price of a good can cause the income effect. When the price of a good falls, the consumer's real income increases, which may cause them to purchase more of all goods (income effect).

Which of the Following Statements Concerning Income and Substitution Effects