If the price of apples rises, oranges become relatively less expensive. The increase in the orange consumption resulting from this price change is an example of the income effect.

Question

Quizplus · Accepted Answer

The increase in orange consumption due to the rise in apple prices is an example of the substitution effect, not the income effect. The substitution effect occurs when consumers switch to a relatively cheaper alternative.

If the Price of Apples Rises, Oranges Become Relatively Less