-In the above figure, the economy initially is at point C. Then the domestic price level rises by 10. A
A) substitution effect would help move the economy to point D.
B) substitution effect would help move the economy to point B.
C) substitution effect would keep the economy at point C.
D) wealth effect would help move the economy to point B.

Question

-In the above figure, the economy initially is at point C. Then the domestic price level rises by 10. A
A) substitution effect would help move the economy to point D. 
B) substitution effect would help move the economy to point B. 
C) substitution effect would keep the economy at point C. 
D) wealth effect would help move the economy to point B.

Quizplus · Accepted Answer

A substitution effect would help move the economy to point D because a higher domestic price level makes domestic goods more expensive relative to foreign goods, leading to a decrease in demand for domestic goods and an increase in demand for foreign goods.

-In the Above Figure, the Economy Initially Is at Point