According to the substitution effect, a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:
A) have more real income.
B) purchase fewer substitute goods.
C) purchase more of the now relatively less expensive good.
D) purchase more complementary goods.

Question

Quizplus · Accepted Answer

The substitution effect states that when the price of a product decreases, buyers will purchase more of it relative to substitute goods, as it is now relatively less expensive. This leads to an increase in the quantity of the product demanded. Choices A, B, and D do not accurately reflect the substitution effect.

According to the Substitution Effect, a Decrease in the Price