Suppose That Consumers' Preferences Are Well Behaved in That Properties

question 174

Multiple Choice

Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 are satisfied.Furthermore,assume that X is a normal good,Y is an inferior good,and 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 decrease in the consumption of good X.
• B) The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good Y.
• C) The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.
• D) The income and substitution effects will reinforce one another, leading to an overall decrease in the consumption of good Y.
• E) The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good X.

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