When a price changes,there are two effects: the ________ effect and the ________effect.
A) real-income; consumer optimum
B) substitution; marginal utility
C) real-income; substitution
D) marginal utility; substitution
E) consumer optimum; substitution

Question

Quizplus · Accepted Answer

The real-income effect refers to the change in purchasing power that occurs when the price of a good changes. If the price of a good increases, then the consumer's purchasing power decreases, and vice versa. This can lead to a change in the quantity demanded of the good.

The substitution effect refers to the change in the quantity demanded of a good that occurs when its price changes relative to the price of another good. If the price of a good increases, then consumers may switch to a substitute good that is relatively cheaper, leading to a decrease in the quantity demanded of the original good.

When a Price Changes,there Are Two Effects: the ________ Effect