The below figure shows the various combinations of the goods X and Y that yield different levels of utility.Figure 7.3

-The substitution effect occurs because when the price of one good increases, consumers will buy fewer substitute goods.

Question

The below figure shows the various combinations of the goods X and Y that yield different levels of utility.Figure 7.3
 
-The substitution effect occurs because when the price of one good increases, consumers will buy fewer substitute goods.

Quizplus · Accepted Answer

The substitution effect occurs because when the price of one good increases, consumers will buy more of the substitute goods, not fewer, as they look for cheaper alternatives.

The Below Figure Shows the Various Combinations of the Goods