Asked by
Sahajveer Singh Sidhu
on Oct 27, 2024
Verified
Which statement is FALSE?
A) The income effect of normal goods counters the substitution effect,so the demand curve slopes upward.
B) The income effect and the substitution effect reinforce each other when the price of a normal good changes.
C) The income effect represents the decrease in quantity demanded caused by the implicit change in income due to a fall in the price of an inferior good but not of a normal good.
D) The substitution effect reflects the change in quantity demanded solely because of a change in the relative price of a good.
Income Effect
The change in an individual's or economy's consumption patterns resulting from a change in real income.
Substitution Effect
The financial concept stating that when prices increase or incomes drop, individuals will substitute higher-priced goods with more affordable options.
Normal Goods
Goods for which demand increases as the income of consumers increases, and falls when consumer income decreases.
- Attain knowledge about the role of income and substitution effects in shaping consumer options.
- Understand the variance between normal and inferior goods, as well as the corresponding reactions of their demand curves.
- Analyze the conditions under which the demand curve for certain goods may slope upwards (Giffin goods).
Verified Answer
MS
Learning Objectives
- Attain knowledge about the role of income and substitution effects in shaping consumer options.
- Understand the variance between normal and inferior goods, as well as the corresponding reactions of their demand curves.
- Analyze the conditions under which the demand curve for certain goods may slope upwards (Giffin goods).