Answer to Question #151146 in Microeconomics for Chan

Question

Goods x and y are perfect substitutes. The price of x decreases and you observe that consumption of x increases. Which of the following is TRUE?

Question 9 options:

MRS<pxpy
at both sets of prices, and there is no substitution effect, only an income effect


MRS>pxpy
at both sets of prices, and there is no income effect, only a substitution effect


MRS<pxpy
at both sets of prices, and there is no income effect, only a substitution effect


MRS>pxpy
at both sets of prices, and there is no substitution effect, only an income effect

Answer 1

MRS<pxpy

at both sets of prices, and there is no income effect, only a substitution effect