The substitution effect of a price change is depicted by a
A)movement along the budget constraint holding satisfaction constant.
B)shift in the budget constraint at the old prices.
C)movement along the consumer's new indifference curve at the new prices.
D)movement along the original indifference curve to the point where the marginal rate of substitution equals the price ratio for the new set of prices.

Question

Quizplus · Accepted Answer

The substitution effect is shown by a movement along the original indifference curve to a point where the marginal rate of substitution equals the new price ratio, reflecting the change in relative prices while keeping utility constant.

The Substitution Effect of a Price Change Is Depicted by a