Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effecta) and income effect both cause an increase in the consumption of X. b) causes a decrease in the consumption of X, and the income effect causes an increase in the consumption of X. However, the substitution effect is greater than the income effect. c) causes an increase in the consumption of X, and the income effect causes a decrease in the consumption of X. However, the substitution effect is greater than the income effect. d) and income effect both cause a decrease in the consumption of X.

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Asked Jan 6, 2020
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Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect

a) and income effect both cause an increase in the consumption of X.
 
b) causes a decrease in the consumption of X, and the income effect causes an increase in the consumption of X. However, the substitution effect is greater than the income effect.
 
c) causes an increase in the consumption of X, and the income effect causes a decrease in the consumption of X. However, the substitution effect is greater than the income effect.
 
d) and income effect both cause a decrease in the consumption of X.
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Normal goods are those goods whose quantity demanded increases, when the income of the consumer increases and vice versa. The income effect is the change in the quantity demanded of a good that results from the effect of a change in price on ...

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