The _________________ measures how people respond to a change in relative prices when the wage rises.

Question

Quizplus · Accepted Answer

The substitution effect measures how people respond to a change in relative prices when the wage rises. It refers to the change in the quantity of one good demanded due to a change in the price of another good, assuming that the consumer's satisfaction or utility remains constant. The substitution effect is important in determining the law of demand, which states that as the price of a good increases, the quantity demanded decreases, ceteris paribus.

The _________________ Measures How People Respond to a Change in Relative