Multiple choice

For a normal commodity, the substitution effect is

  1. always positive

  2. always negative

  3. zero

  4. either positive or negative
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

For a normal commodity, the substitution effect is always negative (inverse relationship between price and quantity). When price falls, the substitution effect always leads to increased consumption of that good as it becomes relatively cheaper compared to substitutes. This is a fundamental principle in consumer theory.

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