The substitution effect refers to
A) the law of diminishing marginal utility.
B) the want-satisfying power of a good or service.
C) substitution of less expensive commodities for more expensive commodities.
D) the change in purchasing power when the price of a good changes.

Question

Quizplus · Accepted Answer

The substitution effect refers to the consumer's tendency to substitute a less expensive commodity for a more expensive one when prices change. This occurs because consumers seek to maintain their purchasing power and maximize their utility by purchasing the same level of goods at a lower cost.

The Substitution Effect Refers to