The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
A) income effect
B) substitution effect
C) backward-bending supply curve
D) preferences effect

Question

Quizplus · Accepted Answer

The substitution effect occurs when consumers adjust their consumption of different goods in response to changes in relative prices, substituting away from goods that have become relatively more expensive towards goods that have become relatively cheaper.

The ________________ Arises When a Price Changes Because Consumers Have