According to the graph, the substitution effect of a decrease in the price of X from $2 to $1 is equal to:

Question

Quizplus · Accepted Answer

The substitution effect is the change in consumption of one good when the price of another good changes, while the purchasing power of the consumer remains constant. In this case, we can see that the quantity demanded of X increases from 10 to 30 as the price of X decreases from $2 to $1, while the quantity demanded of Y remains constant at 20. Thus, the substitution effect can be calculated as follows:

Substitution Effect = Change in Quantity Demanded of X / Initial Price of X
Substitution Effect = (30 - 10) / $2
Substitution Effect = 20

Therefore, the best choice is C)20.

According to the Graph, the Substitution Effect of a Decrease