Figure 21-22

-Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The substitution effect can be illustrated as the movement from
A) D to E.
B) D to C.
C) C to E.
D) E to D.

Question

Figure 21-22
 
-Refer to Figure 21-22.When the price of X is $80,the price of Y is $20,and the consumer's income is $160,the consumer's optimal choice is D.Then the price of X decreases to $20.The substitution effect can be illustrated as the movement from
A) D to E. 
B) D to C. 
C) C to E. 
D) E to D.

Quizplus · Accepted Answer

When the price of X decreases to $20, the consumer's optimal choice will shift due to the substitution effect. The substitution effect means that the consumer will substitute the cheaper good (in this case, X) for the more expensive good (Y). As a result, the consumer will move along the indifference curve from point D to point C, where the ratio of the prices of X and Y is equal to the ratio of their marginal utilities. Therefore, the best choice is now at point C.

Figure 21-22 -Refer to Figure 21-22.When the Price of X Is $80,the