Suppose that consumers' preferences are well behaved in that properties 4-1 - 4-4 are satisfied.Furthermore, assume goods X and Y are normal goods and the price of good X decreases.Then the substitution effect will lead consumers to consume
A)more of good X and more of good Y.
B)less of good X and more of good Y.
C)less of good X and less of good Y.
D)more of good X and less of good Y.

Question

Quizplus · Accepted Answer

According to the substitution effect, as the price of good X decreases, consumers will substitute good X for good Y, since they are normal goods. This will result in an increase in the consumption of good X and a decrease in the consumption of good Y, leading to option D as the correct answer.

Suppose That Consumers' Preferences Are Well Behaved in That Properties