Which of the following is the best example of the substitution effect?
A) Joe buys fewer apples and more oranges as the result of an increase in the price of apples.
B) Joe buys more apples when his income increases.
C) Joe buys an apple slicer when the price of apples decreases.
D) Joe buys less sugar as the result of an increase in price of apples.

Question

Quizplus · Accepted Answer

The substitution effect occurs when a consumer buys less of one good and more of a substitute good due to a change in the relative prices of the goods. Choice A is the best example of the substitution effect because Joe is buying fewer apples (due to an increase in the price of apples) and more oranges (the substitute good). Choice B is an example of the income effect, not the substitution effect. Choice C is an example of the price effect, not the substitution effect. Choice D is not related to the substitution effect at all.

Which of the Following Is the Best Example of the Substitution