The substitution effect must always be ___________ in direction to the effect of a price change.
A) identical
B) independent
C) opposite

Question

Quizplus · Accepted Answer

The substitution effect occurs when a consumer substitutes a product for a cheaper alternative due to a price change. This leads to an increase in demand for the cheaper alternative and a decrease in demand for the original product. The direction of the substitution effect is always opposite to the effect of a price change, meaning that if the price of a product increases, the substitution effect will lead to a decrease in demand for that product and an increase in demand for a cheaper alternative. Therefore, the best option is C, opposite.

The Substitution Effect Must Always Be ___________ in Direction to the Effect