Consumption of more of a good that has become cheaper in place of a good that has become relatively more expensive is the:
A) income effect.
B) substitution effect.
C) budget constraint.
D) inferior effect.

Question

Quizplus · Accepted Answer

When a good becomes cheaper, the substitution effect encourages consumers to buy more of it, while the income effect may encourage them to buy less of it. However, the substitution effect is typically stronger than the income effect, so the overall effect is that consumers will buy more of the cheaper good.

Consumption of More of a Good That Has Become Cheaper