Figure 21-21
-Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?
A)the movement from point R to point S
B)the movement from point R to point T
C)the movement from point T to point S
D)None of the above is correct.

Question

Figure 21-21 
-Refer to Figure 21-21. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the substitution effect of the price decrease?
A)the movement from point R to point S 
B)the movement from point R to point T 
C)the movement from point T to point S 
D)None of the above is correct.

Quizplus · Accepted Answer

The substitution effect shows the movement along a single indifference curve from the original point to the new point after a price change, holding utility constant. In this case, the decrease in the price of good X leads to an increase in its relative affordability and therefore an increase in its quantity demanded. This results in the consumer moving from point R to a new point on the same indifference curve, which is point T. Therefore, the correct answer is B, the movement from point R to point T.

Figure 21-21 -Refer to Figure 21-21. Suppose That a Consumer Is Originally