Question

If a commodity is normal, then a decrease in its price will cause a substitution effect that is ______.

[1 mark]

• A. positive, and an income effect that is positive
• B. positive, and an income effect that is negative
• C. negative, and an income effect that is positive
• D. negative, and an income effect that is negative

Answer 1

The correct option is A positive, and an income effect that is positive

For normal goods, the substitution effect and income effect are both positive.