When the price of a good changes,the substitution effect occurs because:
A)the consumers' real income measured in terms of that good changes.
B)the relative price of that good changes compared to other goods in the consumption bundle.
C)the total utility of that good changes.
D)the marginal utility of that good changes.
E)consumers have an incentive to substitute irrational behavior for rational behavior.

Question

Quizplus · Accepted Answer

The substitution effect occurs because the change in price of a good changes its relative price compared to other goods in the consumption bundle, which leads consumers to substitute it with a relatively cheaper alternative. This is a rational decision based on the principle of utility maximization. The other options do not provide an accurate explanation of the substitution effect.

When the Price of a Good Changes,the Substitution Effect Occurs