The substitution effect and the real-income effect are two effects that happen when
A) marginal utility increases.
B) marginal utility decreases.
C) total utility decreases.
D) a price changes.
E) total utility increases.

Question

Quizplus · Accepted Answer

The substitution effect and the real-income effect occur when there is a change in price, which is represented by the letter D in the options. The substitution effect is when a change in price causes consumers to substitute towards or away from a product, while the real-income effect is when a change in price causes a change in the purchasing power of consumers' incomes.

The Substitution Effect and the Real-Income Effect Are Two Effects