Which of the following describes the substitution effect of a price change?
A)The change in demand that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
B)The change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant.
C)The change in quantity demanded of a good that results from the change in the price of a substitute for the good.
D)The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

Question

Quizplus · Accepted Answer

The substitution effect of a price change refers to the change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power. This means that consumers may switch to a substitute good if the price of the original good increases, or they may buy more of the original good if the price decreases. The substitution effect is separate from the income effect, which refers to the change in quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant.

Which of the Following Describes the Substitution Effect of a Price