The substitution effect can be defined as:
A) the change in consumption that results from a change in the relative price of goods.
B) the change in consumption that results from increased effective wealth due to lower prices.
C) the change in consumption that results from increased effective wealth due to getting a raise.
D) the change in income that results from increased effective consumption due to lower prices

Question

Quizplus · Accepted Answer

The substitution effect refers to the change in consumption that results from a change in the relative price of goods. It occurs when a consumer responds to a change in the price of one good by purchasing more or less of another good that is now relatively more or less expensive. The term "substitution" refers to the fact that the consumer is substituting one good for another in response to the change in prices.

The Substitution Effect Can Be Defined As