The substitution effect is
A) the change in quantity demanded that occurs when one good is substituted for another.
B) the change in the relative prices of two or more goods.
C) the change in quantity demanded that occurs as a result of a change in absolute prices, with real income held constant.
D) the change in quantity demanded that occurs as a result of a change in relative prices with real income held constant.
E) the change in quantity demanded that occurs as a result of a change in relative prices with money income held constant.

Question

Quizplus · Accepted Answer

The substitution effect refers to the change in quantity demanded that occurs as a result of a change in relative prices with real income held constant. It shows how consumers will shift their consumption towards a relatively cheaper good, substituting it for a relatively more expensive one. This effect is important in understanding how changes in prices can affect consumer behavior and demand for goods.

The Substitution Effect Is