Figure 21-21

-Refer to Figure 21-21.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the
A) substitution effect.
B) income effect.
C) budget effect.
D) price effect.

Question

Figure 21-21
 
-Refer to Figure 21-21.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the
A) substitution effect. 
B) income effect. 
C) budget effect. 
D) price effect.

Quizplus · Accepted Answer

The movement from point A to point B due to a decrease in the price of potato chips represents the substitution effect, which occurs when a consumer substitutes the relatively cheaper good for the relatively more expensive one. The income effect occurs when the consumer's purchasing power increases due to a decrease in prices, while the budget effect refers to changes in budget constraints due to price changes. The price effect is a combination of both substitution and income effects.

Figure 21-21 -Refer to Figure 21-21.If the Consumer Is Currently at Point