Suppose the price of aluminum rises, and as a result, a manufacturing company purchases tin to use in place of the now higher-priced aluminum. This is referred to as
A) substitution in consumption.
B) substitution in production.
C) reverse substitution.
D) factor reversal.

Question

Quizplus · Accepted Answer

Substitution in production refers to a situation where a firm switches from one factor of production to another due to a change in relative prices. In this case, the manufacturing company is using tin as a substitute for aluminum due to the increase in the price of aluminum.

Suppose the Price of Aluminum Rises, and as a Result