The ______ is the change in consumption caused by a change in relative prices holding the consumer's utility level constant.
A) budget constraint
B) indifference curve
C) income effect
D) substitution effect

Question

Quizplus · Accepted Answer

The substitution effect is the change in consumption caused by a change in relative prices holding the consumer's utility level constant. The income effect, on the other hand, is the change in consumption caused by a change in real income holding relative prices constant. The budget constraint is the limit to the consumer's consumption choices given their income and the prices of goods. Indifference curves show the combinations of goods that give the consumer the same level of satisfaction.

The ______ Is the Change in Consumption Caused by a Change