The substitution effect is the
A) change in demand that results from an attempt to substitute a good whose price has decreased for another good whose price remained constant after having nullified the implicit change in income
B) good for which demand decreases as the income of the consumer increases and the relative prices remain constant
C) impact of an income-induced change in demand caused by a change in price

Question

Quizplus · Accepted Answer

The substitution effect is the change in demand that results from an attempt to substitute a good whose price has decreased for another good whose price remained constant after having nullified the implicit change in income. The substitution effect occurs when a consumer reacts to a change in the relative prices of goods by changing the quantity demanded of one good in response to a change in the price of another good while holding the level of utility constant.

Option B describes the income effect, and option C describes the total effect.

The Substitution Effect Is the