Statements : (I) The Law of Demand always operates in the case of superior goods. (II) The substitution…

In the case of superior (normal) goods, both the substitution effect and the income effect reinforce each other when price changes, ensuring that the Law of Demand always operates without exception (Statement I is correct). In standard consumer demand theory, the substitution effect is always positive in the sense that a fall in relative price always induces a positive increase in quantity demanded of the relatively cheaper good; hence both Statement I and Statement II are correct.