Suppose a consumer spends all of their money on good X and good Z. When the price of good Z decreases, the A. substitution effect on good Z is positive, and the income effect on good Z is positive. B. substitution effect on good Z is ambiguous, and the income effect on good Z is ambiguous. C. substitution effect on good Z is positive, and the income effect on good Z is ambiguous. D. substitution effect on good Z is ambiguous, and the income effect on good Z is positive. E. None of the above.

Principles of Microeconomics (MindTap Course List)
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ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 5CQQ
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Suppose a consumer spends all of their money on good X and good Z. When the price of good Z decreases, the
A. substitution effect on good Z is positive, and the income effect on good Z is positive.
B. substitution effect on good Z is ambiguous, and the income effect on good Z is ambiguous.
C. substitution effect on good Z is positive, and the income effect on good Z is ambiguous.
D. substitution effect on good Z is ambiguous, and the income effect on good Z is positive.
E. None of the above.
Transcribed Image Text:Suppose a consumer spends all of their money on good X and good Z. When the price of good Z decreases, the A. substitution effect on good Z is positive, and the income effect on good Z is positive. B. substitution effect on good Z is ambiguous, and the income effect on good Z is ambiguous. C. substitution effect on good Z is positive, and the income effect on good Z is ambiguous. D. substitution effect on good Z is ambiguous, and the income effect on good Z is positive. E. None of the above.
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