A consumer purchases just two goods: X and Y. If the price of one good X rises, the consumer buys less of good X and the same amount of good Y.

Question

Quizplus · Accepted Answer

When the price of good X rises, the consumer may buy less of good X due to the substitution effect and the income effect. However, the consumption of good Y may change as well; the consumer might buy more of Y if it's a substitute or less if their purchasing power decreases significantly.

A Consumer Purchases Just Two Goods: X and Y