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Figure: Income and Substitution Effects
-(Figure: Income and Substitution Effects) Refer to the figure. The consumer is initially in equilibrium at Point A then moves to Point B. What is the substitution effect from the price change?
A) the reduction of the number of music downloads by three
B) the reduction of the number of music downloads by four
C) the increase of the number of music downloads by one
D) the increase of the number of music downloads by three

Question

Use the following to answer questions:
Figure: Income and Substitution Effects 
-(Figure: Income and Substitution Effects) Refer to the figure. The consumer is initially in equilibrium at Point A then moves to Point B. What is the substitution effect from the price change?
A) the reduction of the number of music downloads by three 
B) the reduction of the number of music downloads by four 
C) the increase of the number of music downloads by one 
D) the increase of the number of music downloads by three

Quizplus · Accepted Answer

The substitution effect is the change in consumption resulting from a change in the relative price of goods, holding the consumer's utility constant. In this case, it is the reduction of the number of music downloads by three.

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