Advanced Higher Economics Practice Questions - Scottish Advanced Higher Economics (C820 77) Exam

For a normal good, what are the directions of the substitution effect and the income effect following a price decrease?

Both the substitution effect and the income effect increase quantity demanded The substitution effect increases quantity demanded, while the income effect decreases quantity demanded The substitution effect decreases quantity demanded, while the income effect increases quantity demanded Both the substitution effect and the income effect decrease quantity demanded

Correct Answer:

Both the substitution effect and the income effect increase quantity demanded

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