Steve consumes both apples and bananas. The price of apples increases, and the net effect is that Steve consumes less apples and less bananas. Which of the following statements are true.
Why is the statement "bananas are a normal good only if the income effect is greater than the substitution effect" wrong?
My reasoning is as follows: when the price of apples increases, more bananas will be bought because the substitution effect (substitution effect is positive). When the price increases and if bananas are inferior goods, Steve feels poorer so he will buy less bananas due to the income effect. In order for the total effect to be negative, wouldn't the income effect need to be bigger than substitution effect?