The substitution effect of a price change is described by the statement that:
A)when the price of canning jars falls,consumers have more real income with the same nominal income and will buy more canning jars.
B)when the price of canning jars falls,consumers will substitute these lower-priced canning jars for higher-priced goods.
C)the substitution effect is the change in the number of canning jars purchased when the price of spatulas changes.
D)the substitution effect shows how a change in income will affect the quantity of a good purchased.

Question

Quizplus · Accepted Answer

The substitution effect is the change in the quantity demanded of a good when its price changes relative to the price of other goods. In this case, when the price of canning jars falls, consumers will substitute these lower-priced canning jars for higher-priced goods, leading to an increase in the quantity demanded of canning jars. Option A describes the income effect, not the substitution effect. Option C is incorrect as it refers to a change in the price of spatulas, not canning jars. Option D describes the income effect, not the substitution effect.

The Substitution Effect of a Price Change Is Described by the Statement