When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower.This statement describes:

Question

Quizplus · Accepted Answer

The statement describes the substitution effect, which is when consumers switch to other products when the price of a product increases. This is because the other products may now be relatively cheaper in comparison. Inferior goods and complementary goods do not necessarily relate to price increases, and the income effect refers to changes in purchasing power due to changes in income, not price.

When the Price of a Product Rises, Consumers Shift Their