When the price of a product falls, causing consumers to purchase more of that product and less of other products, this is known as the:
A) income effect.
B) substitution effect.
C) wealth effect.
D) interest rate effect.

Question

Quizplus · Accepted Answer

The substitution effect occurs when a price decrease makes a product relatively cheaper compared to other goods, leading consumers to substitute the cheaper product for more expensive alternatives.

When the Price of a Product Falls, Causing Consumers to Purchase