Final answer:
The income and substitution effects explain changes in the quantity demanded of goods, and they can operate in either the same or opposite directions. There's no requirement for one to be greater than the other; both independently contribute to shaping the demand curve.
Step-by-step explanation:
When a student explores the demand curve in economics, they encounter two critical effects: the income effect and the substitution effect. The income effect occurs when a change in income results in a change in the quantity demanded of a good, without a change in relative prices. For instance, if the price of a good remains the same but the consumer's income increases, they may purchase more of that good if it's a normal good or less if it's an inferior good, showcasing a negative income elasticity.
The substitution effect, on the other hand, reflects how consumers will substitute a good with another when its price changes relative to the price of other goods. This effect is always in the opposite direction of price change. Therefore, if the price of a good drops, the substitution effect indicates that consumers will buy more of the cheaper good, substituting it for more expensive alternatives.
Regarding the relationship between the two effects, it is not necessary for the income effect to be greater than or in the same direction as the substitution effect. Both effects can operate in the same or opposite directions. For instance, with a normal good, both effects usually work together to increase the quantity demanded when the price falls. However, for inferior goods, the income effect may work in the opposite direction, potentially leading to a decline in the quantity demanded even if the price falls, if the negative income effect outweighs the substitution effect.
The final answer in two lines: There is no set rule that the income effect must be greater or in the same direction as the substitution effect. Both effects can operate independently and may go in either the same or opposite directions, affecting the demand curve differently.