Which of the Following Statements Is FALSE

question 268

Multiple Choice

Which of the following statements 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.

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Definitions:

Marginal Social Benefit

The additional benefit that society receives from the consumption of an additional unit of a good or service.

Marginal Social Cost

The total cost to society of producing one additional unit of a good or service, considering both the costs borne by the producer and any costs or benefits to third parties (externalities).

Public Good

A product or assistance made available to all societal members without financial gain, provided by either state bodies or voluntary private groups or individuals.

Nonrival

A characteristic of a good whereby one person's consumption does not reduce its availability to others.