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    Question

    The substitution effect for a commodity

    is
    A Is always positive Correct Answer Incorrect Answer
    B Is always negative Correct Answer Incorrect Answer
    C Depends upon the nature of the commodity Correct Answer Incorrect Answer
    D Depends upon price effect Correct Answer Incorrect Answer

    Solution

    Substitution effect means when the price of a good increases (decreases), it becomes more expensive(less expensive) than the other good, therefore its quantity demanded will decrease(increase). Substitution effect also shows negative relation between quantity demanded and price, so substitution effect is also negative.

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