Suppose the price of the normal good X increases. In this case, the substitution effect states that the consumer purchases _____ of good X, and the total effect is _____ in consumption of good X.

Question

Quizplus · Accepted Answer

The substitution effect implies that as the price of good X increases, consumers will buy less of it because it has become relatively more expensive compared to other goods. The total effect, which includes both the substitution effect and the income effect, also results in a decrease in consumption of good X, as the higher price reduces the consumer's real income or purchasing power, leading to less consumption of the now more expensive good.

Suppose the Price of the Normal Good X Increases