Which of the Following Statements Is True About the Substitution

question 162

Multiple Choice

Which of the following statements is true about the substitution and income effects of an increase in the price of a good?

• A)The net effect of the substitution and income effects results in a decrease in the quantity demanded of the good.
• B)Both the substitution and income effects predict that the quantity demanded of the good increases.
• C)The substitution effect predicts that the quantity demanded of the good increases, but the income effect predicts that the quantity demanded of the good decreases.
• D)The substitution effect predicts that the quantity demanded of the good decreases, but the income effect predicts that the quantity demanded of the good increases.
• E)Neither the substitution effect nor the income effect provides any prediction about changes in the quantity demanded of the good.

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Definitions:

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