What is the benefit of understanding the income and the substitution effects?
A) The income effect might run in the opposite direction of the substitution effect.
B) The income effect always runs in the opposite direction of the substitution effect.
C) The income and substitution effects just offset each other, which explains a lot.
D) The income and substitution effects are proportional to each other.
Question 2
What is the primary difference between the substitution and the income effect of a price change?
A) The substitution effect holds income constant and the income effect holds utility constant.
B) The substitution effect is always positive and the income effect is always negative.
C) The substitution effect holds utility constant and the income effect holds prices constant.
D) The substitution effect is always negative and the income effect is always positive.
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