According to the substitution effect,a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:
A)have more real income.
B)purchase fewer substitute goods.
C)purchase more of the now less expensive good.
D)purchase more complementary goods.

Question

Quizplus · Accepted Answer

The substitution effect suggests that as the price of a good falls, it becomes relatively cheaper compared to its substitutes, causing consumers to substitute away from those substitutes and towards purchasing more of the cheaper good, leading to an increase in the quantity demanded. The decrease in price does not necessarily lead to an increase in real income or the purchase of complementary goods.

According to the Substitution Effect,a Decrease in the Price of a Product