-In the above figure, if the budget line shifts from RT to RS, the substitution effect is illustrated by the move from
A) a to c.
B) b to c.
C) T to S.
D) a to b.

Question

-In the above figure, if the budget line shifts from RT to RS, the substitution effect is illustrated by the move from
A) a to c. 
B) b to c. 
C) T to S. 
D) a to b.

Quizplus · Accepted Answer

The substitution effect refers to the change in consumption patterns due to a change in relative prices, holding real income constant. Moving from point a to b illustrates this effect, as it shows how the consumer adjusts their consumption in response to the price change before any income effect is considered.

-In the Above Figure, If the Budget Line Shifts from RT