Assume the price of Levi jeans increases. As a result, you decrease the quantity of Levi jeans purchased each month and purchase more Lee jeans. This is an example of the:
A) consumption effect.
B) utility effect.
C) income effect.
D) substitution effect.

Question

Quizplus · Accepted Answer

The situation described is an example of the substitution effect. This effect refers to the change in consumption choices due to a change in the relative prices of goods. In this case, the increase in the price of Levi jeans led to a decrease in the quantity demanded, and consumers switched to a substitute good (Lee jeans) that had become relatively cheaper. The other options (consumption effect, utility effect, income effect) are not appropriate in this particular scenario.

Assume the Price of Levi Jeans Increases