Final answer:
The substitution effect and income effect both contribute to an increase in demand when the price of a good decreases.
Step-by-step explanation:
The substitution effect and the income effect are two factors that come into play when the price of a good decreases. The substitution effect suggests that consumers will tend to buy more of the good with the lower price and less of other goods. The income effect reflects the fact that consumers will have more purchasing power after the price decrease, allowing them to buy more of the same good or other goods. Therefore, a decrease in the price of good X will generally increase the demand for good X.
With rational, monotonic, and convex preferences, the substitution effect of a price decrease in good X will always lead to an increase in demand for good X, not depending on the income effect or price elasticity of demand.
If a consumer has rational, monotonic, and convex preferences, concerning the substitution effect of a decrease in the price of good X, it will always increase the demand for good X. This is because the substitution effect refers to the tendency of consumers to purchase more of a good when its price decreases relative to other goods. This occurs regardless of the income effect, which also often contributes to an increased demand when good X becomes cheaper but can vary depending on whether the good is normal or inferior. The demand for good X does not primarily depend on the price elasticity of demand in the context of the substitution effect.