What is the substitution effect?
A)The effect that a change in income has on the demand for a substitute product.
B)The sacrifice which has to be made when an additional quantity of one product is purchased.
C)The substitution of one product for another as a result of a change in their relative prices.
D)The substitution of a normal product for an inferior product as the result of an increase in income.

Question

Quizplus · Accepted Answer

The substitution effect is the change in the consumption pattern of a good that occurs due to a change in its price relative to other goods. When the price of a good increases, consumers switch to a substitute good that is relatively cheaper. This is known as the substitution effect. Therefore, choice C best describes the substitution effect.

What Is the Substitution Effect