The substitution effect of a price change
A)will result in the consumer buying less of a good at a lower price.
B)will result in the consumer buying less of a good at a higher price.
C)outweighs the income effect for Giffen goods.
D)is equal to the income effect for normal goods.
E)is equal to the income effect for inferior goods.

Question

Quizplus · Accepted Answer

The substitution effect occurs when a price change makes a good relatively cheaper or more expensive compared to other goods, leading consumers to substitute away from the good that has become relatively more expensive (buying less of it) and towards the good that has become relatively cheaper.

The Substitution Effect of a Price Change