In the diagram on the right the consumer\'s original budget line is L_1, and the

Question

In the diagram on the right the consumer's original budget line is L_1, and the consumer buys the amount of good X at point A. Then the price of good X decreases dramatically so that the consumer's new budget line shifts to L_2. After the price decrease the consumer buys the amount of good X at point C. The substitution effect due to the price change is the movement from point to point. The income effect due to the price change is the movement from point to point. Based on the income effect, good X is good.

Explanation / Answer

1. Substitution effect = A-B

2.Income effect = B-C

3.INFERIOR GOOD -AS the income increased quantity of good x decreased.

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