When the price of a pizza decreases from $12 to $10, it is definitely the case that the

Question

Quizplus · Accepted Answer

According to the law of demand, as the price of a good decreases, the quantity demanded of that good will increase, assuming everything else (such as income) remains constant. The substitution effect refers to the idea that when the price of a good decreases, people will choose to buy more of that good and less of other goods that are now relatively more expensive. In this case, as the price of pizza decreases, people may choose to buy more pizza and less of other foods. Therefore, the correct answer is A) substitution effect means people buy more pizza.

When the Price of a Pizza Decreases from $12 to $10