If consumer has rational. monotonic and convex preferences, which of the following is true concerning the...

If consumer has rational. monotonic and convex preferences, which of the following is true concerning the substitution effect of a decrease in price of good X.

A) It always will lead to an increase in consumption of good X.

B) It will lead to an increase in consumption of good X only if X is a Giffen good.

C) It will lead to an increase in consumption of good X only if X is an inferior good.

D) It will lead to an increase in consumption of good X only if X is a normal good.

Expert Solution

Answer: (d)

Such relationship and substitution effect holds true only if both goods under the consideration are normal goods.

The decrease in the price of good x would cause the rise in the demand for the good x provided that other good is normal as well.

Rahul Sunny answered 2 years ago

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