Assume that a college student purchases only diet soda and potato chips. The substitution effect associated with a decrease in the price of a potato chips will result in
A) an increase in the consumption of diet soda only.
B) a decrease in the consumption of diet soda only.
C) an increase in the consumption of potato chips and a decrease in the consumption of diet soda.
D) a decrease in the consumption of potato chips and an increase in the consumption of diet soda.

Question

Quizplus · Accepted Answer

The substitution effect implies that as the price of potato chips decreases, they become relatively cheaper compared to diet soda, leading the student to substitute potato chips for diet soda, increasing potato chip consumption and decreasing diet soda consumption.

Assume That a College Student Purchases Only Diet Soda and Potato