Question

a) The income effect is positive only in the case of a superior commodity
b) The income effect is negative in the case of an inferior commodity

• A. Both (a) and (b) are true
• B. (a) is true, but (b) is false
• C. (a) is false, but (b) is true
• D. Both (a) and (b) are false

Answer 1

The correct option is A Both (a) and (b) are true

Both A and B are true.

With the increase in income the demand for superior or better quality goods increase hence there is a positive income effect.

On the other hand with an increase in income the demand for inferior or low quality goods decrease thus the income effect is negative.