The substitution effect of an increase in the price of peaches is
A)the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
B)the change in the demand for nectarines (a substitute good)that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power.
C)the change in the quantity of peaches demanded that results from the effect of the change in the price of peaches on the consumer's purchasing power.
D)the change in the demand for peaches that results when the price of peaches increases.

Question

Quizplus · Accepted Answer

The substitution effect is a change in the quantity demanded of a good due to a change in relative prices of substitute goods while holding the consumer purchasing power constant. In this case, an increase in the price of peaches will make peaches relatively more expensive than other substitute goods, leading consumers to substitute away from peaches towards a cheaper alternative. The change in quantity demanded of peaches is a result of this substitution effect. Therefore, option A is the correct choice.

The Substitution Effect of an Increase in the Price of Peaches