Assume X and Y are the only two goods a person consumes.If after a rise in $P _ { X }$ the quantity demanded of Y increases,one could say
A)the income effect dominates the substitution effect for Y.
B)the substitution effect dominates the income effect for Y.
C)it is impossible to determine whether the substitution or income effect dominates for Y.
D)None of the above.

Question

Quizplus · Accepted Answer

When the price of good X increases and the quantity demanded of good Y increases, it indicates that consumers are substituting good Y for the now more expensive good X. This is a clear example of the substitution effect dominating the income effect for good Y, as consumers shift their consumption towards the relatively cheaper good.

Assume X and Y Are the Only Two Goods a Person