The substitution effect is
A)the change in quantity demanded that occurs as a result of a change in absolute prices,with real income held constant.
B)the change in quantity demanded that occurs as a result of a change in relative prices with money income held constant.
C)the change in quantity demanded that occurs as a result of a change in relative prices with real income held constant.
D)the change in quantity demanded that occurs when one good is substituted for another.
E)the change in the relative prices of two or more goods.

Question

Quizplus · Accepted Answer

The substitution effect refers to the change in quantity demanded that occurs as a result of a change in relative prices with real income held constant. It is specifically related to the idea that as the price of one good increases, consumers will substitute that good for a cheaper alternative, resulting in a decrease in the quantity demanded of the more expensive good. This effect is separate from the income effect, which is the change in quantity demanded that occurs as a result of a change in absolute prices, with real income held constant.

The Substitution Effect Is