Consider a consumer who purchases two goods, X and Y. If the price of good Y falls, then the substitution effect by itself will
A)cause the consumer to buy more of good Y and less of good X.
B)cause the consumer to buy more of good X and less of good Y.
C)not affect the amount of goods X and Y that the consumer buys.
D)result in an upward-sloping demand for good Y if the substitution effect is positive.

Question

Quizplus · Accepted Answer

The substitution effect occurs when the relative price of a good changes, causing consumers to shift their consumption towards the now cheaper good. In this case, the price of good Y has fallen, making it relatively cheaper compared to good X. As a result, the consumer will substitute good Y for good X and buy more of good Y and less of good X. Therefore, the correct answer is A.

Consider a Consumer Who Purchases Two Goods, X and Y