The substitution effect
A) occurs when utility declines as consumption increases.
B) is the additional satisfaction derived from consuming one more unit of a good or service.
C) is the combination of goods and services that maximizes utility for a given income.
D) occurs when a consumer buys more of a good as a result of a relative price change.
E) occurs when there is a change in purchasing power as a result of a change in the price of a good.

Question

Quizplus · Accepted Answer

The substitution effect occurs when a consumer buys more of a good as a result of a relative price change. For example, if the price of coffee decreases relative to the price of tea, a consumer may switch from consuming more tea to consuming more coffee, resulting in the substitution effect.

The Substitution Effect