The table below shows the total utility associated with various units of goods X and Y.Table 7.5

-Which of the following statements concerning income and substitution effects is not true?
A)Income and substitution effects cause the demand curve to slope downward.
B)When the price of a good falls, real purchasing power increases and consumers can purchase more of all goods.
C)The substitution effect describes the situation in which more of the good whose price has fallen is purchased, and less of all other goods is purchased.
D)A price decrease of one good cannot cause the income effect.
E)Income and substitution effects are related to diminishing marginal utility and consumer equilibrium.

Question

The table below shows the total utility associated with various units of goods X and Y.Table 7.5
 
-Which of the following statements concerning income and substitution effects is not true?
A)Income and substitution effects cause the demand curve to slope downward. 
B)When the price of a good falls, real purchasing power increases and consumers can purchase more of all goods. 
C)The substitution effect describes the situation in which more of the good whose price has fallen is purchased, and less of all other goods is purchased. 
D)A price decrease of one good cannot cause the income effect. 
E)Income and substitution effects are related to diminishing marginal utility and consumer equilibrium.

Quizplus · Accepted Answer

This statement is not true because a decrease in the price of a good can cause an income effect if the good is a normal good. The increase in purchasing power resulting from the lower price can lead to an increase in demand for the good, even if the substitution effect leads to a decrease in demand.

The Table Below Shows the Total Utility Associated with Various