Olga consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X falls, what can we predict with certainty will occur, (aside from Olga’s real income rising)?

Question

Answer

She will consume more of good X, but she might consume more, less, or the same of good Y.

Answer

None of the above.

Answer

The substitution effect will ensure that she consumes more of good X and less of good Y.

Answer

She will consume more of both goods.

Answer

The substitution effect will negate the positive effect of the rise.

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Olga consumes two normal goods, X and Y, and is currently at an optimum. If the ...

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