The substitution effect is the effect of a change in ________ on ________.The income effect is the effect of a change in ________ on ________.
A)income;quantity bought of a substitute;income;quantity bought
B)income;consumption;price;quantity bought
C)price;quantity bought;income;quantity bought
D)the price of a substitute;quantity bought;income;the number of labour hours
E)none of the above

Question

Quizplus · Accepted Answer

The substitution effect is the effect of a change in price on the quantity bought, as consumers may switch to a substitute good if the price of a product increases. The income effect, on the other hand, is the effect of a change in income on the quantity bought, as consumers may change their consumption patterns based on changes in their purchasing power due to changes in income. Choice C correctly identifies the variables that affect each effect.

The Substitution Effect Is the Effect of a Change in ________