Graphing only a change in price for a good does not distinguish the contribution of the ________ from the ________.
A) substitution effect; real-income effect
B) perfect substitute; perfect complement
C) indifference curve; maximization point
D) rotation; shift
E) consumer optimum; marginal rate of substitution

Question

Quizplus · Accepted Answer

Graphing only a change in price for a good does not distinguish the contribution of the substitution effect from the real-income effect. The substitution effect refers to the change in quantity demanded of a good due to a change in its relative price, whereas the real-income effect refers to the change in quantity demanded due to a change in purchasing power resulting from the price change. Both effects can influence the change in demand resulting from a change in price, and a graphical analysis of price change alone cannot differentiate between them.

Graphing Only a Change in Price for a Good Does