Suppose that consumers' preferences are well behaved in that properties 4-1 to 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

Since X is a normal good, a decrease in its price will lead to an increase in its quantity demanded due to the income effect. However, the substitution effect will cause consumers to switch from Y to X, leading to a decrease in the quantity demanded of Y. Therefore, consumers will consume more of good X and less of good Y.

Suppose That Consumers' Preferences Are Well Behaved in That Properties