Which of the following statements is not correct?
A)Reducing taxes on interest income might encourage people to save more.
B)Reducing taxes on interest income might reduce saving.
C)A price increase will create income and substitution effects that will both always work to reduce consumption of the good.
D)Utility is maximized when the marginal rate of substitution between any two goods equals the relative prices of the two goods.

Question

Quizplus · Accepted Answer

The substitution effect will always work to reduce consumption of the good when its price increases, but the income effect could either increase or decrease consumption depending on whether the good is normal or inferior.

Which of the Following Statements Is Not Correct