The Substitution Effect (Movement from C to D) as a Shift to a Higher MRS

A consumer is choosing between two goods and has typical, convex indifference curves. The relative price of the first good increases. A classmate claims that, when isolating the effect of this relative price change while keeping the consumer's satisfaction level constant, it is possible for the consumer to choose to consume more of the first good. Which statement best evaluates this claim?

Analyzing Consumer Response to a Price Change

If a consumer's preferences were represented by indifference curves that are concave to the origin (bowed outwards), the substitution effect of a price increase for a good could lead to an increase in its consumption, holding satisfaction constant.

An individual has an endowment of 100 units for consumption now and zero for consumption later. They have two financial options: 1) Invest any part of their current endowment to receive a 50% return later. 2) Borrow against their future income at a 10% interest rate. The individual's optimal choice is to consume 80 units now and 62 units later. Which statement accurately breaks down the actions taken to reach this optimal point?

The Inevitable Direction of the Substitution Effect

A consumer with typical, convex-to-the-origin indifference curves is purchasing two goods. If the price of one of these goods rises, why must the isolated substitution effect lead to a decrease in the consumption of that good?

A consumer is choosing between two goods, X and Y, and has standard, convex indifference curves. Initially, the consumer chooses bundle A. The price of good X then increases, and the consumer's new optimal choice is bundle B. To isolate the substitution effect, an economist identifies a hypothetical bundle, C, which lies on the consumer's original indifference curve but is tangent to a budget line with the new, higher relative price of good X. Which of the following movements represents the pure substitution effect?

A consumer with standard, convex indifference curves is choosing between Good X and Good Y. The price of Good X increases. Match each component of this economic event with its correct description.

Deconstructing a Price Change Observation

A consumer with typical, convex indifference curves is observed to consume more of a good after its price increases. This observation proves that the substitution effect for this consumer was positive.