Refer to Figure 6.5.The substitution effect is shown by the movement:
A)from point A to point B.
B)from point A to point C.
C)from point B to point C.
D)from point B to point A.

Question

Refer to Figure 6.5.The substitution effect is shown by the movement: 
A)from point A to point B. 
B)from point A to point C. 
C)from point B to point C. 
D)from point B to point A.

Quizplus · Accepted Answer

The substitution effect is the movement from one point to another along a single indifference curve as a result of a change in the relative prices of two goods. In this case, the movement from point A to point B shows the substitution effect because it represents a movement along the same indifference curve due to the increase in the price of good Y.