diff --git a/README.md b/README.md
index 468448a..70ea1b0 100644
--- a/README.md
+++ b/README.md
@@ -87,6 +87,47 @@ Use our configuration system to manage all customizations in one place:
 
 See [CONFIG.md](CONFIG.md) for detailed configuration documentation.
 
+#### ⚖️ Configuration Precedence Rules
+
+Awesome Copilot uses an **effective state system** that respects explicit overrides while allowing collections to provide convenient defaults:
+
+1. **Explicit Settings Override Everything**
+   ```yaml
+   collections:
+     testing-automation: true    # Enables 11 items
+   prompts:
+     playwright-generate-test: false  # Explicitly disabled, overrides collection
+   ```
+
+2. **Collections Enable Groups of Items**
+   ```yaml
+   collections:
+     frontend-web-dev: true     # Enables React, Vue, TypeScript items
+     testing-automation: true   # Enables testing tools and frameworks
+   ```
+
+3. **Undefined Items Follow Collections**
+   - Items not explicitly listed inherit from enabled collections
+   - Only explicitly set true/false values override collection settings
+   - This allows collections to work as intended while preserving explicit choices
+
+**Examples:**
+```bash
+# See effective states and why each item is enabled
+awesome-copilot list prompts
+# [✓] create-readme (explicit)
+# [✓] playwright-generate-test (collection)
+# [ ] react-component
+
+# Collection toggle shows what will change
+awesome-copilot toggle collections frontend-web-dev on
+# Delta summary:
+#   📈 8 items will be enabled:
+#     + prompts/react-component
+#     + prompts/vue-component
+#     + instructions/typescript-best-practices
+```
+
 ### 📁 Manual File Approach
 
 Browse the collections and manually copy files you want to use:
diff --git a/test-all.js b/test-all.js
new file mode 100644
index 0000000..55eac5f
--- /dev/null
+++ b/test-all.js
@@ -0,0 +1,103 @@
+#!/usr/bin/env node
+
+/**
+ * Comprehensive test suite for all awesome-copilot functionality
+ */
+
+const { runTests: runUnitTests } = require('./test-effective-states');
+const { runTests: runIntegrationTests } = require('./test-integration');
+const { runTests: runCliTests } = require('./test-cli');
+const { runTests: runApplyTests } = require('./test-apply-effective');
+
+async function runAllTests() {
+  console.log('🧪 Running Awesome Copilot Comprehensive Test Suite\n');
+  console.log('=' * 60);
+  
+  const results = {
+    unit: false,
+    integration: false,
+    cli: false,
+    apply: false
+  };
+
+  try {
+    console.log('\n📊 Unit Tests (Effective State Computation)');
+    console.log('-' * 45);
+    results.unit = await runUnitTests();
+  } catch (error) {
+    console.error('Unit tests failed with error:', error.message);
+  }
+
+  try {
+    console.log('\n🔄 Integration Tests (Toggle+Apply Idempotency)');
+    console.log('-' * 48);
+    results.integration = await runIntegrationTests();
+  } catch (error) {
+    console.error('Integration tests failed with error:', error.message);
+  }
+
+  try {
+    console.log('\n⌨️  CLI Tests (List and Toggle Commands)');
+    console.log('-' * 40);
+    results.cli = await runCliTests();
+  } catch (error) {
+    console.error('CLI tests failed with error:', error.message);
+  }
+
+  try {
+    console.log('\n🎯 Apply Tests (Effective States in Apply)');
+    console.log('-' * 42);
+    results.apply = await runApplyTests();
+  } catch (error) {
+    console.error('Apply tests failed with error:', error.message);
+  }
+
+  // Summary
+  console.log('\n' + '=' * 60);
+  console.log('📋 Test Suite Summary');
+  console.log('=' * 60);
+  
+  const testTypes = [
+    { name: 'Unit Tests', result: results.unit, emoji: '📊' },
+    { name: 'Integration Tests', result: results.integration, emoji: '🔄' },
+    { name: 'CLI Tests', result: results.cli, emoji: '⌨️' },
+    { name: 'Apply Tests', result: results.apply, emoji: '🎯' }
+  ];
+
+  testTypes.forEach(test => {
+    const status = test.result ? '✅ PASS' : '❌ FAIL';
+    console.log(`${test.emoji} ${test.name.padEnd(20)} ${status}`);
+  });
+
+  const passedCount = Object.values(results).filter(Boolean).length;
+  const totalCount = Object.keys(results).length;
+
+  console.log('\n' + '-' * 60);
+  console.log(`Overall Result: ${passedCount}/${totalCount} test suites passed`);
+  
+  if (passedCount === totalCount) {
+    console.log('🎉 All test suites passed! Implementation is complete.');
+    console.log('\n✨ Features implemented:');
+    console.log('  • Effective state precedence (explicit > collection > disabled)');
+    console.log('  • Non-destructive collection toggles with delta summaries');
+    console.log('  • Enhanced CLI with reason display (explicit/collection)');
+    console.log('  • Performance improvements with Set-based lookups');
+    console.log('  • Comprehensive configuration handling');
+    console.log('  • Stable config hashing and idempotent operations');
+    return true;
+  } else {
+    console.log('💥 Some test suites failed. Check individual test output above.');
+    return false;
+  }
+}
+
+if (require.main === module) {
+  runAllTests().then(success => {
+    process.exit(success ? 0 : 1);
+  }).catch(error => {
+    console.error('Test suite runner error:', error);
+    process.exit(1);
+  });
+}
+
+module.exports = { runAllTests };
\ No newline at end of file
diff --git a/test-apply-effective.js b/test-apply-effective.js
new file mode 100644
index 0000000..c4aa936
--- /dev/null
+++ b/test-apply-effective.js
@@ -0,0 +1,227 @@
+#!/usr/bin/env node
+
+/**
+ * Test to verify that apply operations always use effective states
+ */
+
+const fs = require('fs');
+const { exec } = require('child_process');
+const { promisify } = require('util');
+const path = require('path');
+
+const execAsync = promisify(exec);
+
+// Change to project directory for tests
+process.chdir(__dirname);
+
+const TEST_CONFIG = 'test-apply-effective.yml';
+const TEST_OUTPUT_DIR = '.test-apply-effective';
+
+function assert(condition, message) {
+  if (!condition) {
+    throw new Error(`Assertion failed: ${message}`);
+  }
+}
+
+function cleanup() {
+  if (fs.existsSync(TEST_CONFIG)) fs.unlinkSync(TEST_CONFIG);
+  if (fs.existsSync(TEST_OUTPUT_DIR)) {
+    fs.rmSync(TEST_OUTPUT_DIR, { recursive: true, force: true });
+  }
+}
+
+async function runCommand(command) {
+  try {
+    const { stdout, stderr } = await execAsync(command);
+    return { success: true, stdout, stderr };
+  } catch (error) {
+    return { success: false, stdout: error.stdout, stderr: error.stderr, error };
+  }
+}
+
+function getFilesList(dir) {
+  if (!fs.existsSync(dir)) return [];
+  
+  const files = [];
+  function traverse(currentDir) {
+    const items = fs.readdirSync(currentDir);
+    for (const item of items) {
+      const fullPath = path.join(currentDir, item);
+      if (fs.statSync(fullPath).isDirectory()) {
+        traverse(fullPath);
+      } else {
+        files.push(path.basename(fullPath));
+      }
+    }
+  }
+  traverse(dir);
+  return files.sort();
+}
+
+function setTestOutputDir(configFile) {
+  let configContent = fs.readFileSync(configFile, 'utf8');
+  configContent = configContent.replace('output_directory: ".awesome-copilot"', `output_directory: "${TEST_OUTPUT_DIR}"`);
+  fs.writeFileSync(configFile, configContent);
+}
+
+async function runTests() {
+  console.log('Testing that apply operations use effective states...\n');
+  
+  let passedTests = 0;
+  let totalTests = 0;
+
+  async function test(name, testFn) {
+    totalTests++;
+    cleanup(); // Clean up before each test
+    
+    try {
+      await testFn();
+      console.log(`✅ ${name}`);
+      passedTests++;
+    } catch (error) {
+      console.log(`❌ ${name}: ${error.message}`);
+    }
+  }
+
+  // Test 1: Apply respects explicit false overrides
+  await test("Apply respects explicit false overrides", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    setTestOutputDir(TEST_CONFIG);
+    
+    // Enable collection
+    await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    
+    // Explicitly disable one item from the collection
+    await runCommand(`node awesome-copilot.js toggle prompts playwright-generate-test off --config ${TEST_CONFIG}`);
+    
+    // Apply
+    await runCommand(`node awesome-copilot.js apply ${TEST_CONFIG}`);
+    
+    const files = getFilesList(TEST_OUTPUT_DIR);
+    
+    // Should have files from collection but NOT the explicitly disabled one
+    assert(files.includes('csharp-nunit.prompt.md'), 'Should include collection items');
+    assert(!files.includes('playwright-generate-test.prompt.md'), 'Should NOT include explicitly disabled items');
+  });
+
+  // Test 2: Apply includes collection items that are undefined
+  await test("Apply includes collection items that are undefined", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    setTestOutputDir(TEST_CONFIG);
+    
+    // Enable collection (items remain undefined - no explicit settings)
+    await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    
+    // Apply
+    await runCommand(`node awesome-copilot.js apply ${TEST_CONFIG}`);
+    
+    const files = getFilesList(TEST_OUTPUT_DIR);
+    
+    // Should include all collection items since none are explicitly overridden
+    assert(files.includes('playwright-generate-test.prompt.md'), 'Should include undefined collection items');
+    assert(files.includes('csharp-nunit.prompt.md'), 'Should include all collection items');
+    assert(files.includes('tdd-red.chatmode.md'), 'Should include collection chatmodes');
+  });
+
+  // Test 3: Apply respects explicit true overrides over disabled collections
+  await test("Apply respects explicit true overrides over disabled collections", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    setTestOutputDir(TEST_CONFIG);
+    
+    // Collection remains disabled, but explicitly enable one item
+    await runCommand(`node awesome-copilot.js toggle prompts playwright-generate-test on --config ${TEST_CONFIG}`);
+    
+    // Apply
+    await runCommand(`node awesome-copilot.js apply ${TEST_CONFIG}`);
+    
+    const files = getFilesList(TEST_OUTPUT_DIR);
+    
+    // Should only have the explicitly enabled item
+    assert(files.includes('playwright-generate-test.prompt.md'), 'Should include explicitly enabled items');
+    assert(!files.includes('csharp-nunit.prompt.md'), 'Should NOT include collection items when collection disabled');
+    assert(files.length === 1, 'Should only have one file');
+  });
+
+  // Test 4: Multiple collections work together through effective states
+  await test("Multiple collections work together through effective states", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    setTestOutputDir(TEST_CONFIG);
+    
+    // Enable multiple collections
+    await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    await runCommand(`node awesome-copilot.js toggle collections frontend-web-dev on --config ${TEST_CONFIG}`);
+    
+    // Apply
+    await runCommand(`node awesome-copilot.js apply ${TEST_CONFIG}`);
+    
+    const files = getFilesList(TEST_OUTPUT_DIR);
+    
+    // Should have items from both collections
+    assert(files.length > 11, 'Should have items from multiple collections'); // testing-automation has 11 items
+    assert(files.includes('playwright-generate-test.prompt.md'), 'Should include testing items');
+  });
+
+  // Test 5: Apply output matches effective state computation
+  await test("Apply output matches effective state computation", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    setTestOutputDir(TEST_CONFIG);
+    
+    // Complex scenario: collection + explicit override + individual enable
+    await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    await runCommand(`node awesome-copilot.js toggle prompts playwright-generate-test off --config ${TEST_CONFIG}`);
+    await runCommand(`node awesome-copilot.js toggle prompts create-readme on --config ${TEST_CONFIG}`);
+    
+    // Get list of what should be enabled according to CLI (only individual items, not collections)
+    const listResult = await runCommand(`node awesome-copilot.js list prompts --config ${TEST_CONFIG}`);
+    const enabledPrompts = (listResult.stdout.match(/\[✓\] (\S+)/g) || []).map(m => m.replace('[✓] ', '').split(' ')[0]);
+    
+    const instructionsResult = await runCommand(`node awesome-copilot.js list instructions --config ${TEST_CONFIG}`);
+    const enabledInstructions = (instructionsResult.stdout.match(/\[✓\] (\S+)/g) || []).map(m => m.replace('[✓] ', '').split(' ')[0]);
+    
+    const chatmodesResult = await runCommand(`node awesome-copilot.js list chatmodes --config ${TEST_CONFIG}`);
+    const enabledChatmodes = (chatmodesResult.stdout.match(/\[✓\] (\S+)/g) || []).map(m => m.replace('[✓] ', '').split(' ')[0]);
+    
+    const allEnabledItems = [...enabledPrompts, ...enabledInstructions, ...enabledChatmodes];
+    
+    // Apply and get actual files
+    await runCommand(`node awesome-copilot.js apply ${TEST_CONFIG}`);
+    const actualFiles = getFilesList(TEST_OUTPUT_DIR);
+    
+    // Extract base names for comparison
+    const actualBaseNames = actualFiles.map(f => f.replace(/\.(prompt|instructions|chatmode)\.md$/, ''));
+    
+    // Every enabled item in list should have a corresponding file
+    allEnabledItems.forEach(item => {
+      assert(actualBaseNames.includes(item), `Item ${item} shown as enabled should have corresponding file`);
+    });
+    
+    // Every file should correspond to an enabled item
+    actualBaseNames.forEach(fileName => {
+      assert(allEnabledItems.includes(fileName), `File ${fileName} should correspond to an enabled item`);
+    });
+  });
+
+  console.log(`\nEffective States Apply Test Results: ${passedTests}/${totalTests} passed`);
+  
+  cleanup(); // Final cleanup
+  
+  if (passedTests === totalTests) {
+    console.log('🎉 All effective states apply tests passed!');
+    return true;
+  } else {
+    console.log('💥 Some effective states apply tests failed!');
+    return false;
+  }
+}
+
+if (require.main === module) {
+  runTests().then(success => {
+    process.exit(success ? 0 : 1);
+  }).catch(error => {
+    console.error('Test runner error:', error);
+    cleanup();
+    process.exit(1);
+  });
+}
+
+module.exports = { runTests };
\ No newline at end of file
diff --git a/test-cli.js b/test-cli.js
new file mode 100644
index 0000000..5c1aa69
--- /dev/null
+++ b/test-cli.js
@@ -0,0 +1,154 @@
+#!/usr/bin/env node
+
+/**
+ * CLI tests for list and toggle commands
+ */
+
+const fs = require('fs');
+const { exec } = require('child_process');
+const { promisify } = require('util');
+
+const execAsync = promisify(exec);
+
+// Change to project directory for tests
+process.chdir(__dirname);
+
+const TEST_CONFIG = 'test-cli.yml';
+
+function assert(condition, message) {
+  if (!condition) {
+    throw new Error(`Assertion failed: ${message}`);
+  }
+}
+
+function cleanup() {
+  if (fs.existsSync(TEST_CONFIG)) fs.unlinkSync(TEST_CONFIG);
+}
+
+async function runCommand(command) {
+  try {
+    const { stdout, stderr } = await execAsync(command);
+    return { success: true, stdout, stderr };
+  } catch (error) {
+    return { success: false, stdout: error.stdout, stderr: error.stderr, error };
+  }
+}
+
+async function runTests() {
+  console.log('Running CLI tests for list and toggle commands...\n');
+  
+  let passedTests = 0;
+  let totalTests = 0;
+
+  async function test(name, testFn) {
+    totalTests++;
+    cleanup(); // Clean up before each test
+    
+    try {
+      await testFn();
+      console.log(`✅ ${name}`);
+      passedTests++;
+    } catch (error) {
+      console.log(`❌ ${name}: ${error.message}`);
+    }
+  }
+
+  // Test 1: List command shows sections correctly
+  await test("List command shows sections correctly", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    
+    const result = await runCommand(`node awesome-copilot.js list --config ${TEST_CONFIG}`);
+    assert(result.success, 'List command should succeed');
+    assert(result.stdout.includes('Prompts'), 'Should show Prompts section');
+    assert(result.stdout.includes('Instructions'), 'Should show Instructions section');
+    assert(result.stdout.includes('Chat Modes'), 'Should show Chat Modes section');
+    assert(result.stdout.includes('Collections'), 'Should show Collections section');
+  });
+
+  // Test 2: List specific section works
+  await test("List specific section works", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    
+    const result = await runCommand(`node awesome-copilot.js list prompts --config ${TEST_CONFIG}`);
+    assert(result.success, 'List prompts should succeed');
+    assert(result.stdout.includes('Prompts'), 'Should show Prompts heading');
+    assert(!result.stdout.includes('Instructions'), 'Should not show other sections');
+  });
+
+  // Test 3: Toggle collection shows delta summary
+  await test("Toggle collection shows delta summary", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    
+    const result = await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    assert(result.success, 'Toggle should succeed');
+    assert(result.stdout.includes('Delta summary'), 'Should show delta summary');
+    assert(result.stdout.includes('items will be enabled'), 'Should show enabled items count');
+  });
+
+  // Test 4: List shows effective states after collection toggle
+  await test("List shows effective states after collection toggle", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    
+    const result = await runCommand(`node awesome-copilot.js list prompts --config ${TEST_CONFIG}`);
+    assert(result.success, 'List should succeed');
+    assert(result.stdout.includes('(collection)'), 'Should show collection reason');
+    assert(result.stdout.includes('[✓]'), 'Should show enabled items');
+  });
+
+  // Test 5: Toggle individual item shows explicit override
+  await test("Toggle individual item shows explicit override", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    
+    const result = await runCommand(`node awesome-copilot.js toggle prompts playwright-generate-test off --config ${TEST_CONFIG}`);
+    assert(result.success, 'Individual toggle should succeed');
+    
+    const listResult = await runCommand(`node awesome-copilot.js list prompts --config ${TEST_CONFIG}`);
+    assert(listResult.stdout.includes('playwright-generate-test') && !listResult.stdout.includes('playwright-generate-test ('), 
+           'Explicitly disabled item should not show reason');
+  });
+
+  // Test 6: Error handling for invalid commands
+  await test("Error handling for invalid commands", async () => {
+    const result1 = await runCommand(`node awesome-copilot.js toggle --config ${TEST_CONFIG}`);
+    assert(!result1.success, 'Should fail with insufficient arguments');
+
+    const result2 = await runCommand(`node awesome-copilot.js toggle prompts nonexistent on --config ${TEST_CONFIG}`);
+    assert(!result2.success, 'Should fail with nonexistent item');
+  });
+
+  // Test 7: Collection toggle idempotency
+  await test("Collection toggle idempotency", async () => {
+    await runCommand(`node awesome-copilot.js init ${TEST_CONFIG}`);
+    await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    
+    const result = await runCommand(`node awesome-copilot.js toggle collections testing-automation on --config ${TEST_CONFIG}`);
+    assert(result.success, 'Should succeed');
+    assert(result.stdout.includes('already enabled'), 'Should indicate no change needed');
+  });
+
+  console.log(`\nCLI Test Results: ${passedTests}/${totalTests} passed`);
+  
+  cleanup(); // Final cleanup
+  
+  if (passedTests === totalTests) {
+    console.log('🎉 All CLI tests passed!');
+    return true;
+  } else {
+    console.log('💥 Some CLI tests failed!');
+    return false;
+  }
+}
+
+if (require.main === module) {
+  runTests().then(success => {
+    process.exit(success ? 0 : 1);
+  }).catch(error => {
+    console.error('CLI test runner error:', error);
+    cleanup();
+    process.exit(1);
+  });
+}
+
+module.exports = { runTests };
\ No newline at end of file