The table below shows the total utility associated with various units of goods X and Y.Table 7.5

-Suppose the price of beef declines by $0.50 per pound at the supermarket. Consumers of beef immediately increase their purchases of beef. This illustrates:
A)the fact that beef is an inferior good.
B)the cross-elasticity effect of a price decrease.
C)the substitution effect of a price decrease.
D)the fact that beef is an economic bad.
E)the income effect of a rise in price.

Question

The table below shows the total utility associated with various units of goods X and Y.Table 7.5
 
-Suppose the price of beef declines by $0.50 per pound at the supermarket. Consumers of beef immediately increase their purchases of beef. This illustrates:
A)the fact that beef is an inferior good. 
B)the cross-elasticity effect of a price decrease. 
C)the substitution effect of a price decrease. 
D)the fact that beef is an economic bad. 
E)the income effect of a rise in price.

Quizplus · Accepted Answer

The fact that consumers increase their purchases of beef after a price decline illustrates the substitution effect. This effect occurs when consumers switch from one good to another that has become relatively cheaper, holding their utility level constant. In this case, the lower price of beef makes it relatively cheaper than other goods, and consumers increase their consumption of beef to maintain their level of total utility.

The Table Below Shows the Total Utility Associated with Various