The substitution effect can be defined as the change in consumption that results from:
A)a change in the relative prices of goods.
B)increased effective wealth due to lower prices.
C)increased effective wealth due to increased income.
D)consumption change in income due to lower prices.

Question

Quizplus · Accepted Answer

The substitution effect occurs when consumers adjust their consumption of goods in response to a change in the relative prices of those goods, substituting away from goods that have become relatively more expensive in favor of those that have become relatively cheaper.

The Substitution Effect Can Be Defined as the Change in Consumption