Identify the truthfulness of the following statements.
I. For normal goods, the income and substitution effects work in the same direction.
II. Some normal goods are Giffen goods.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Question

Identify the truthfulness of the following statements. 
I. For normal goods, the income and substitution effects work in the same direction.
II. Some normal goods are Giffen goods.
A) Both I and II are true.
B) Both I and II are false.
C) I is true; II is false.
D) I is false; II is true.

Quizplus · Accepted Answer

Statement I is true. For normal goods, the income effect and substitution effect work in the same direction, which means when the price of a normal good decreases, the consumer would buy more of it due to both income and substitution effects.
Statement II is false. Giffen goods are a type of inferior goods, and their demand increases when their price increases. Therefore, they cannot be normal goods.

Identify the Truthfulness of the Following Statements