The change in consumption that results when a price change moves the consumer along a given indifference curve to a point with a new marginal rate of substitution is called the
A) income effect.
B) substitution effect.
C) Giffen good effect.
D) inferior good effect.

Question

Quizplus · Accepted Answer

The change in consumption that results from a price change and moves the consumer along a given indifference curve to a new point with a different marginal rate of substitution is called the substitution effect. The income effect, on the other hand, is the change in consumption resulting from an income change, while Giffen and inferior good effects are specific types of price change effects.

The Change in Consumption That Results When a Price Change