Question:
Which of the following statements characterise the 'Normal Good'?
(A). The quantity demanded of a commodity increases as its price falls.
(B). The income effect of price change is positive.
(C). The substitution effect of price change is negative.
(D). The income and substitution effects work in the opposite direction.
Choose the correct answer from the options given below:
Which of the following statements characterise the 'Normal Good'?
(A). The quantity demanded of a commodity increases as its price falls.
(B). The income effect of price change is positive.
(C). The substitution effect of price change is negative.
(D). The income and substitution effects work in the opposite direction.
Choose the correct answer from the options given below:
(A). The quantity demanded of a commodity increases as its price falls.
(B). The income effect of price change is positive.
(C). The substitution effect of price change is negative.
(D). The income and substitution effects work in the opposite direction.
Choose the correct answer from the options given below:
Show Hint
For a Normal Good, substitution and income effects work in the same direction, reinforcing each other.
For an Inferior Good, they work in opposite directions.
For an Inferior Good, they work in opposite directions.
Updated On: Jul 13, 2026
- (A), (B) and (D) only.
- (A) and (B) only.
- (A), (B) and (C) only.
- (B), (C) and (D) only.
Show Solution
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The Correct Option is C
Solution and Explanation
Step 1: Understanding the Concept:
A normal good is a commodity for which demand increases when consumer income rises, and demand decreases when consumer income falls.
Step 2: Detailed Explanation:
Let us analyze each of the given statements:
- (A). The quantity demanded of a commodity increases as its price falls:
This describes the standard downward-sloping demand curve (Law of Demand), which applies to all normal goods. Thus, statement (A) is correct.
- (B). The income effect of price change is positive:
When the price of a normal good falls, the consumer's real income (purchasing power) increases.
Because the good is normal, this increase in real income leads to an increase in its consumption.
This is a positive income effect, making statement (B) correct.
- (C). The substitution effect of price change is negative:
The substitution effect is always negative for any good.
When the price of a good falls, it becomes relatively cheaper compared to other goods.
This relative price change causes consumers to buy more of the cheaper good, substitute-wise. Thus, statement (C) is correct.
- (D). The income and substitution effects work in the opposite direction:
For a normal good, both the income and substitution effects reinforce each other (they work in the same direction to increase demand when price falls).
They only work in opposite directions for inferior or Giffen goods. Thus, statement (D) is incorrect.
Therefore, statements (A), (B), and (C) characterize a normal good.
Step 3: Final Answer:
The correct option is (C).
A normal good is a commodity for which demand increases when consumer income rises, and demand decreases when consumer income falls.
Step 2: Detailed Explanation:
Let us analyze each of the given statements:
- (A). The quantity demanded of a commodity increases as its price falls:
This describes the standard downward-sloping demand curve (Law of Demand), which applies to all normal goods. Thus, statement (A) is correct.
- (B). The income effect of price change is positive:
When the price of a normal good falls, the consumer's real income (purchasing power) increases.
Because the good is normal, this increase in real income leads to an increase in its consumption.
This is a positive income effect, making statement (B) correct.
- (C). The substitution effect of price change is negative:
The substitution effect is always negative for any good.
When the price of a good falls, it becomes relatively cheaper compared to other goods.
This relative price change causes consumers to buy more of the cheaper good, substitute-wise. Thus, statement (C) is correct.
- (D). The income and substitution effects work in the opposite direction:
For a normal good, both the income and substitution effects reinforce each other (they work in the same direction to increase demand when price falls).
They only work in opposite directions for inferior or Giffen goods. Thus, statement (D) is incorrect.
Therefore, statements (A), (B), and (C) characterize a normal good.
Step 3: Final Answer:
The correct option is (C).
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