Suppose that consumers' preferences are well behaved in that properties 4-1 - 4-4 are satisfied.Furthermore, assume that both X and Y are inferior goods and the price of good Y increases.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

Since X and Y are inferior goods, an increase in price of Y will mean that consumers will consume less of Y. However, since the price of X remains the same, consumers will shift their consumption towards good X, leading to an increase in its consumption. Therefore, the substitution effect will lead to consumers consuming more of good X and less of good Y.

Suppose That Consumers' Preferences Are Well Behaved in That Properties