Consider the Indifference Curve Map and Budget Constraint for Two

question 29

Multiple Choice

Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

• A)and income effect both cause an increase in the consumption of X.
• B)causes a decrease in the consumption of X, and the income effect causes an increase in the consumption of X. However, the substitution effect is greater than the income effect.
• C)causes an increase in the consumption of X, and the income effect causes a decrease in the consumption of X. However, the substitution effect is greater than the income effect.
• D)and income effect both cause a decrease in the consumption of X.

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Definitions:

End-of-month payments

Payments made at the conclusion of the month, often used in context with loans, rents, and utilities.

Compounded monthly

The process of adding interest to the principal sum of a loan or deposit, where this addition of interest occurs once every month.

Compounded annually

Interest calculated once a year on the principal amount of an investment, including any interest from previous periods.

Foreclosure action

A legal process in which a lender seeks to recover the balance of a loan from a borrower who has stopped making payments, typically by selling the property used as collateral.