Which of the following statements is FALSE?
A) When the relative price of a good falls, the substitution effect always leads the consumer to substitute more of that good for the other good.
B) For a normal good, the income effect reinforces the substitution effect.
C) For an inferior good, the income effect offsets the substitution effect.
D) For an inferior good, the income effect is positive.

Question

Quizplus · Accepted Answer

For an inferior good, when the price falls, the substitution effect leads the consumer to buy more of that good while the income effect leads the consumer to buy less of that good. Therefore, the income effect is negative for an inferior good, not positive as stated in choice D.

Which of the Following Statements Is FALSE