Course: Introduction to Microeconomics Topic: Consumer Theory Assume that there exists an economy with only 2 goods X and Y, whose prices are Px and Py. Moreover, both goods are NOT COMPLEMENTARY. Unexpectedly, Px rises sharply. In this regard, following comments are heard (ONLY ONE ALTERNATIVE MUST BE MARKED and must be explained) Which one(s) is/are WRONG? I. Final demand for good Y will certainly increase due to Substitution Effect. II. If X is a NORMAL GOOD, both Income Effect and Substitution Effect will reduce demand for X. III. If Y is an INFERIOR GOOD its demand will increase by more than if it were a NORMAL GOOD (in face of increase in Px).

A) I, II and III

B) I and II

C) Only II

D) II and III

E) I and III

F) Only I