In Figure 16-1.The move from point A to point B represents the _____ of an input price change.
A)substitution effect
B)output effect
C)income effect
D)effect of diminishing returns

Question

Quizplus · Accepted Answer

The move from point A to point B represents the substitution effect of an input price change. The substitution effect occurs when firms switch to the relatively cheaper input to maintain their level of output. As a result, the quantity demanded of the relatively cheaper input increases, and the quantity demanded of the relatively more expensive input decreases. This effect is shown by the movement along an isoquant that represents the same level of output before and after the input price change.