The change in consumption that results from a change in the relative price of goods while staying on the same indifference curve is the
A) income effect.
B) substitution effect.
C) indifference effect.
D) price effect.

Question

Quizplus · Accepted Answer

The change in consumption resulting from a change in relative prices while staying on the same indifference curve is the substitution effect. The substitution effect occurs when a consumer switches to a cheaper substitute due to the price change, while the income effect refers to changes in consumption resulting from changes in purchasing power due to changes in income, and the indifference effect is not a commonly used concept in economics. The price effect is a term used to refer to the combined impact of both the income and substitution effects.

The Change in Consumption That Results from a Change in the Relative