For a normal good,the income and substitution effects work in the ______ direction.Therefore,a change in price produces a ______ change in uncompensated demand than in compensated demand.
A) opposite; smaller
B) opposite; larger
C) same; smaller
D) same; larger

Question

Quizplus · Accepted Answer

For a normal good, both the income and substitution effects work in the same direction to increase or decrease demand when prices change. Therefore, a change in price produces a larger change in uncompensated demand (which includes both income and substitution effects) than in compensated demand (which isolates the substitution effect by holding utility constant).

For a Normal Good,the Income and Substitution Effects Work in the ______