Question

Assume that an individual only consumes two​ goods: pizza and colapizza and cola​, with pizzapizza being a normal gooda normal good. For a decrease in the price of pizzapizza​, the income effect and substitution effect will work in the opposite direction and the demand curve will be flatter than if pizzapizza were an inferior goodan inferior good.

Answer 1

FALSE

Step-by-step explanation:

It is false that income effect and substitution effect will work in the opposite direction for a normal good because for a normal good, income effect will act in the same direction as the substitution effect not the opposite, since both the income and substitution effect will work towards increasing the quantity demanded of the normal good whose price has fallen.

It is also false that the demand curve will be flatter for an inferior good because the income effect of inferior goods is that people buy less of it when the price falls whereas in the case of a normal good people will buy more with a price drop. Thedemand curve becomes flatter for a normal good when price drops