The income and substitution effects work in opposite directions.

Question

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The income effect suggests that as income increases, the quantity demanded of a good increases, while the substitution effect suggests that as the price of a good increases, consumers will switch to cheaper substitutes. These two effects typically work in opposite directions, with the income effect pushing for more consumption of the good and the substitution effect pushing for less consumption.

The Income and Substitution Effects Work in Opposite Directions