A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume
A)more popcorn and more Pepsi.
B)less popcorn and less Pepsi.
C)more popcorn and less Pepsi.
D)less popcorn and more Pepsi.

Question

Quizplus · Accepted Answer

The substitution effect suggests that when the price of Pepsi rises, consumers will substitute away from Pepsi (because it has become relatively more expensive) and towards popcorn (which has become relatively cheaper in comparison), leading to more consumption of popcorn and less consumption of Pepsi.

A Consumer Consumes Two Normal Goods, Popcorn and Pepsi