Assume Sally is initially in equilibrium and that X and Y are normal goods for her. Then the price of X rises. For Sally to move to a new equilibrium point, her consumption of
A) X must remain constant, but her consumption of Y must increase.
B) X must decrease.
C) X must increase.
D) both X and Y must increase.

Question

Quizplus · Accepted Answer

When the price of a normal good (X) increases, the consumer (Sally) will buy less of that good due to the substitution effect (substituting good X with other goods) and the income effect (the price increase effectively reduces her purchasing power), leading to a decrease in the consumption of X to reach a new equilibrium.

Assume Sally Is Initially in Equilibrium and That X and Y