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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