A change in the price of a good causes a change in the combination of goods consumed within the budget constraint.

Question

Quizplus · Accepted Answer

When the price of a good changes, it affects the relative prices of all the goods in the market. This leads to a change in the optimal combination of goods that consumers can afford to buy within their budget constraint. This is known as the substitution effect. Therefore, a change in the price of a good causes a change in the combination of goods consumed within the budget constraint.

A Change in the Price of a Good Causes a Change