When the price of a good rises,the resulting change in relative price causes the consumer to reduce his quantity demanded of that good,even when the consumer is income-compensated so that he remains indifferent about the price change.This observation is known as the
A) Giffen good phenomenon.
B) law of demand.
C) substitution effect.
D) income effect.

Question

Quizplus · Accepted Answer

The substitution effect occurs when consumers react to an increase in a good's price by consuming less of that good and more of a substitute good, even if their income is adjusted to compensate for the price change, keeping their utility level constant. This effect isolates the impact of a price change on the quantity demanded, independent of the income effect.

When the Price of a Good Rises,the Resulting Change in Relative