The substitution effect is the effect of
A)a change in income on the quantity bought.
B)a change in price on the quantity bought when the consumer moves to a higher indifference curve.
C)a change in income on the quantity bought when the consumer moves to a higher indifference curve.
D)a change in the best affordable point.
E)a change in price on the quantity bought when the consumer hypothetically remains on the same indifference curve.

Question

Quizplus · Accepted Answer

The substitution effect refers to the change in the quantity demanded of a good due to a change in its price, with the consumer's level of utility (satisfaction) held constant, effectively keeping them on the same indifference curve. This isolates the effect of the price change from the income effect, which involves changes in consumption resulting from the change in the consumer's purchasing power.

The Substitution Effect Is the Effect of