When the price of apples is $2 and the price of oranges is $2, Sue buys 10 apples and eight oranges. When the price of apples decreases to $1, apples become more appealing than oranges because the opportunity cost of buying apples decreases while the opportunity cost of buying oranges increases. What does this description describe?
A) the income effect
B) the consumption effect
C) the substitution effect
D) the Heisenberg principle

Question

Quizplus · Accepted Answer

The description illustrates the substitution effect, which occurs when consumers choose to buy more of a product that has become relatively cheaper (in this case, apples) and less of a product that has become relatively more expensive in comparison (oranges, by comparison, due to the unchanged price while apples become cheaper). This effect is part of consumer choice theory in economics, explaining how changes in relative prices influence the allocation of a consumer's budget.

When the Price of Apples Is $2 and the Price