The substitution and income effects reinforce each other for:
A) complement goods.
B) normal goods.
C) inferior goods.
D) Giffen goods.

Question

Quizplus · Accepted Answer

The substitution and income effects reinforce each other for normal goods. When the price of a normal good decreases, consumers will buy more of it because of the substitution effect (they can buy more of the good for the same amount of income), and because of the income effect (the decrease in price increases their purchasing power, allowing them to buy more of all goods). Likewise, when the price of a normal good increases, the substitution and income effects reinforce each other to reduce demand for the good.

The Substitution and Income Effects Reinforce Each Other For