Suppose Ming spends his entire income on two goods, X and Y, has "standard-looking" indifference curves, and chooses C his initial optimal consumption bundle. Now suppose the price of X decreas while Ming's income and the price of Y stay unchanged. At his new optimal consumption bundle, Ming consumes more X and more Y than he consumec at C. Given this information, which of the following statements must be true

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.9P
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Suppose Ming spends his entire income on two
goods, X and Y, has "standard-looking" indifference curves, and chooses C' as
his initial optimal consumption bundle. Now suppose the price of X decreases
while Ming's income and the price of Y stay unchanged. At his new optimal
consumption bundle, Ming consumes more X and more Y than he consumed
at C. Given this information, which of the following statements must be true?
O Xis a normal good.
O Xif an inferior good.
O Yis a normal good.
O Y is an inferior good.
O The substitution effect dominates the income effect for Y.
Transcribed Image Text:Suppose Ming spends his entire income on two goods, X and Y, has "standard-looking" indifference curves, and chooses C' as his initial optimal consumption bundle. Now suppose the price of X decreases while Ming's income and the price of Y stay unchanged. At his new optimal consumption bundle, Ming consumes more X and more Y than he consumed at C. Given this information, which of the following statements must be true? O Xis a normal good. O Xif an inferior good. O Yis a normal good. O Y is an inferior good. O The substitution effect dominates the income effect for Y.
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