Holding real income constant,the change in quantity consumed that is caused by a change in the relative price of the good describes the
A) law of diminishing returns.
B) substitution effect.
C) income effect.
D) law of supply.

Question

Quizplus · Accepted Answer

The change in quantity consumed caused by a change in the relative price of the good is known as the substitution effect. This effect happens because consumers will switch to a less expensive substitute if the price of a good increases. However, it is important to note that the income effect can also play a role in the change in quantity consumed, as a decrease in price increases the purchasing power of consumers' income. However, since the question specifies that real income is held constant, the income effect is not a factor. The law of diminishing returns and law of supply are not relevant to the question.

Holding Real Income Constant,the Change in Quantity Consumed That Is