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Microeconomics

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Moderate

Income and Substitution Effects: Slutsky Knows All

MICRO-3Z7JMM

When the price of a good changes, the amount someone consumes of that good can change. This change in quantity consumed can be broken down following the Slutsky Identity which says the following:

$$\text{Total Effect = Substitution Effect + Income Effect}$$

If the Total Effect is positive, which of the following might be true? Select ALL that apply.

A

The price change was negative and the good is inferior.

B

The price change was negative and the good is normal.

C

The price change was positive and the good is inferior.

D

The price change was positive and the good is normal.

E

The good is a Giffen good.