If consumers purchase more of a good because its relative price has gone down, then it would be described as
A) the substitution effect.
B) the income effect.
C) a rightward shift of the budget line.
D) a rightward shift of the indifference curve.

Question

Quizplus · Accepted Answer

The substitution effect occurs when consumers react to a decrease in the price of a good by purchasing more of that good in place of other goods, which have now become relatively more expensive. This is because the lower price makes the good more attractive relative to other goods, leading to a substitution away from these other goods towards the cheaper good.

If Consumers Purchase More of a Good Because Its Relative