The substitution effect of a price change
A)is equal to the income effect for normal goods.
B)will result in the consumer buying less of a good at a lower price.
C)will result in the consumer buying less of a good at a higher price.
D)is equal to the income effect for inferior goods.
E)outweighs the income effect for Giffen goods.

Question

Quizplus · Accepted Answer

The substitution effect occurs when a price change makes a good relatively cheaper or more expensive compared to other goods, leading consumers to substitute away from the more expensive good and buy more of the cheaper one. Thus, when the price of a good increases, the substitution effect leads to buying less of that good.

The Substitution Effect of a Price Change