The substitution and income effects work in opposite directions for:
A) complement goods.
B) substitute goods.
C) normal goods.
D) inferior goods.

Question

Quizplus · Accepted Answer

For inferior goods, the income effect and substitution effect work in opposite directions. When the price of an inferior good decreases, the substitution effect suggests that consumers will buy more of that good, while the income effect suggests that they will buy less of it because they can afford to buy more expensive goods that they prefer. This leads to an overall ambiguous response to changes in price.

The Substitution and Income Effects Work in Opposite Directions For