Figure 21-22
-Refer to Figure 21-22. If the consumer is currently at point A in the figure, a movement to point B as a result of a decrease in the price of potato chips represents the
A)substitution effect.
B)income effect.
C)budget effect.
D)price effect.

Question

Figure 21-22 
-Refer to Figure 21-22. If the consumer is currently at point A in the figure, a movement to point B as a result of a decrease in the price of potato chips represents the
A)substitution effect. 
B)income effect. 
C)budget effect. 
D)price effect.

Quizplus · Accepted Answer

The movement from point A to point B is a result of the substitution effect, which is the change in consumption of one good in response to a change in the price of another good. In this case, consumers are substituting potato chips for other goods because their price has decreased. The income effect is the change in demand due to a change in income, and the budget effect is the overall change in demand due to a change in price and income. The price effect refers to the change in demand due to a change in price, but it is not specific to the movement from point A to point B in this figure.

Figure 21-22 -Refer to Figure 21-22. If the Consumer Is Currently at Is