Suppose That Consumers' Preferences Are Well Behaved in That Properties

question 117

Multiple Choice

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

• A) The income and substitution effects reinforce one another, leading to an overall increase in the consumption of good X.
• B) The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X.
• C) The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good X.
• D) The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.

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Definitions:

Chattels

Personal property or movable possessions, as opposed to real property which includes land and buildings.

Intangible Property

Assets that do not have a physical presence yet hold value, such as intellectual property, copyrights, patents, and trademarks.

Chose in Action

A personal right to property which can only be claimed or enforced through legal action, not by taking physical possession.

Intellectual Property

Refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names, and images used in commerce.