The substitution effect is explained by the fact that at lower levels of prices we
have more income to buy goods.

Name: The substitution effect is explained by the fact that at lower levels of prices we have more income to buy goods.
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Question

The substitution effect is explained by the fact that at lower levels of prices we
 have more income to buy goods.

Quizplus · Accepted Answer

The substitution effect is explained by the fact that when the price of a good decreases, consumers are likely to substitute this cheaper good for other relatively more expensive goods, not because they have more income.

The Substitution Effect Is Explained by the Fact That at Lower