Figure 4.1
A consumer's original utility maximizing market basket of goods is shown in Figure 4.1 as point A. Following a price change, the consumer's utility maximizing market basket changes is at point B.
-Refer to Figure 4.1. The substitution effect of the price change in food on the quantity of food purchased is:

Question

Quizplus · Accepted Answer

The substitution effect occurs when the consumer switches from the original market basket (point A) to a new market basket (point B) due to the price change. In this case, the price of food must have increased since the consumer has reduced the quantity of food consumed (from F3 to F2) and increased the quantity of clothing consumed (from C1 to C2) to achieve the same level of utility at point B. Therefore, the best choice is B, the change from F3 to F2.

Figure 4.1 A Consumer's Original Utility Maximizing Market Basket of Goods Is