Suppose a consumer buys only two goods A and B. When commodity A becomes cheaper with increase in consumer’s income, it is seen that consumption of A has decreased and that of B has increased. This is because

The correct answer is: C. The substitution effect has acquired the predominance of the income effect.

The substitution effect is the tendency for consumers to buy more of a good when its price falls, while holding real income constant. The income effect is the tendency for consumers to buy more of a good when their real income increases.

In this case, the consumer’s income has increased, but the consumption of good A has decreased. This suggests that the substitution effect is greater than the income effect. In other words, the consumer is buying more of good B because it is now relatively cheaper, even though they have more money to spend.

Option A is incorrect because the income effect is not negative in this case. The consumer’s income has increased, so the income effect should be positive.

Option B is incorrect because the real income of the consumer has not decreased. The consumer’s income has increased, so their real income has also increased.

Option D is incorrect because good B is a substitute for good A. If good B is a complete replacement for good A, then the consumer would not buy any good A at all.