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Assume x and y are the only two goods a person consumes. If after a rise in Px the quantity demanded of y increases, one could say
a. the income effect dominates the substitution effect.
b. the substitution effect dominates the income effect.
c. it is still impossible to determine whether the substitution or income effect dominates.
d. none of these answers is correct.
In this question, I think the answer is b because when Px rises, the real income will decrease. Then the income effect will let consumer to buy fewer x and fewer y. Due to the substitute effect, y should increase when px increase. The quantity of y finally increases, then it means the SE dominates the IE. I wanna know whether my thinking is right or not. Besides, for another situation that if the Px decreases, and the quantity demand of y increases. Which effect dominates then?
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