Question 12 (3 points)
The following are correct statements
about the Income Effect (IE) and
Substitution Effect (SE) coming from an
increase in $P_x$, EXCEPT:
I.E. is the result of a decline in
Purchasing Power on consumers
coming from an increase in $P_x$.
S.E. is the result of the substitution
coming from a change in relatives
prices between alternative goods
$(x, y)$.
If two goods are close substitutes,
then SE is stronger than IE.
If two goods are close substitutes,
then Income Effect is Zero