If the price of tulips falls, the substitution effect due to the price change will cause
A)an increase in the demand for tulips.
B)an increase in the demand for roses, a substitute for tulips.
C)an increase in the quantity demanded of tulips.
D)an increase in the quantity supplied of tulips.

Question

Quizplus · Accepted Answer

When the price of tulips falls, the substitution effect will cause an increase in the quantity demanded of tulips. This means that consumers will purchase more tulips because they are now relatively cheaper compared to other goods. However, there is no reason to believe that the demand for tulips will increase overall, nor that the demand for substitutes like roses will increase. The quantity supplied of tulips may also change in response to the price change, but this is not related to the substitution effect.

If the Price of Tulips Falls, the Substitution Effect Due