The change in a consumer's consumption of a good in response to an income-compensated price change is called the:
A) substitution effect.
B) budget effect.
C) demand effect.
D) income effect.

Question

Quizplus · Accepted Answer

The substitution effect occurs when a consumer changes their consumption of goods in response to a change in the relative prices of those goods, holding real income (purchasing power) constant. This is distinguished from the income effect, which is the change in consumption resulting from a change in the consumer's real income.

The Change in a Consumer's Consumption of a Good in Response