As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:
A)the income effect of a price change.
B)a decrease in reservation price.
C)the substitution effect of a price change.
D)a decrease in demand.

Question

Quizplus · Accepted Answer

The substitution effect is the change in the quantity demanded of a good that results from buyers switching to or from substitutes when the price of a good changes.

As Coffee Becomes More Expensive, Joe Starts Drinking Tea Instead