-In the above figure, if the budget line shifts from RT to RS, the substitution effect is illustrated by the move from
A) a to b.
B) a to c.
C) b to c.
D) T to S.

Question

-In the above figure, if the budget line shifts from RT to RS, the substitution effect is illustrated by the move from
A) a to b. 
B) a to c. 
C) b to c. 
D) T to S.

Quizplus · Accepted Answer

The substitution effect is the change in the consumption of one good as a result of a change in the relative price of that good. In this case, the relative price of good X has increased, so consumers will substitute away from good X and towards good Y. This is illustrated by the move from point a to point b.

-In the Above Figure, If the Budget Line Shifts from RT