A. Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y decreases. Then, which of the following effects is known with certainty? Multiple Choice The income and substitution effects reinforce one another, leading to an overall increase in the consumption of good X. The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X. The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good X. The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.
A. Suppose that consumers' preferences are well behaved in that properties 4-1 to 4-4 (completeness, more is better, diminishing marginal rate of substitution, and transitivity) are satisfied. Furthermore, assume that both X and Y are normal goods and that the price of good Y decreases. Then, which of the following effects is known with certainty?
Multiple Choice
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The income and substitution effects reinforce one another, leading to an overall increase in the consumption of good X.
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The income and substitution effects reinforce one another, leading to an overall decrease in the consumption of good X.
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The income and substitution effects will have competing effects, leading to an indeterminate impact on the consumption of good X.
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The income and substitution effects will reinforce one another, leading to an overall increase in the consumption of good Y.
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