The substitution effect isolates the change in the consumption of a good caused by:
A) the lower "real" income.
B) the change in consumer preferences.
C) the change in the market rate of substitution.
D) None of the statements is correct.

Question

Quizplus · Accepted Answer

The substitution effect refers to the change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute one good for another.

The Substitution Effect Isolates the Change in the Consumption of a Good