Impact of Rise in Price of Good Y on Demand for Good Y

Introduction:
When a consumer is in equilibrium, it means that he is satisfied with the combination of goods X and Y he is consuming. Any change in the price of one good can affect the demand for both goods. In this case, we will analyze the impact of a rise in the price of good Y on the demand for good Y.

Substitution Effect:
The substitution effect occurs when the consumer substitutes one good for another due to a change in their relative prices. When the price of good Y rises, it becomes relatively expensive compared to good X, assuming the price of X is constant. As a result, the consumer will substitute good Y with good X, as it is relatively cheaper.

Income Effect:
The income effect occurs when a change in price affects the consumer's purchasing power. When the price of good Y rises, assuming the consumer's income and the price of good X are constant, the consumer will have less purchasing power. As a result, the consumer will reduce the quantity demanded of good Y.

Overall Impact:
The combination of the substitution effect and the income effect leads to a fall in the demand for good Y. The extent of the fall in demand depends on the elasticity of demand for good Y. If the demand for good Y is elastic, the fall in demand will be significant, whereas if it is inelastic, the fall in demand will be less.

Conclusion:
In conclusion, a rise in the price of good Y will lead to a fall in the demand for good Y due to the substitution effect and the income effect. The fall in demand will depend on the elasticity of demand for good Y.

Consumption of good x goes on increase