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Suppose that consumers' preferences are well behaved in that properties 4-1-4-4 are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y increases. Then, which of the following effect is known with certainty.

A. The income and substitution effect reinforce one another leading to an overall increase the consumption of good X
B. The income and substitution effect reinforce one another leading to an overall decrease the consumption of good X
C. There will be an indeterminate effect on the consumption of good X
D. The income and substitution effect will reinforce one another leading to an overall increase in the consumption of good Y

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M965938

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