In order to isolate the substitution effect of a price increase,a consumer
A) must be given a lower price on the other good so that he can achieve his original indifference curve.
B) must be given enough of the other good so that his consumption of that good is not influenced.
C) must be given enough additional income to allow him to achieve his original indifference curve.
D) must be given enough additional income to allow him to purchase the original quantity of the good.

Question

Quizplus · Accepted Answer

The substitution effect isolates the change in consumption of goods due to a change in relative prices, holding utility constant. Giving the consumer enough additional income to reach the original indifference curve allows for the measurement of this effect without the income effect.

In Order to Isolate the Substitution Effect of a Price