The substitution effect isolates the change in the consumption of a good caused by:
A) the lower "real" income.
B) the change in the relative prices of two goods.
C) the change in consumer preferences.
D) None of the preceding statements is correct.

Question

Quizplus · Accepted Answer

The substitution effect isolates the change in the consumption of a good caused by the change in the relative prices of two goods. It shows how consumers shift their consumption from one good to another in response to changes in relative prices while keeping their utility constant.

The Substitution Effect Isolates the Change in the Consumption of a Good