Pepsi and pizza are normal goods. When the price of pizza falls, the substitution effect by itself will cause a
A)shift to a lower indifference curve so that the consumer buys less Pepsi.
B)shift to a higher indifference curve so that the consumer buys more Pepsi.
C)movement along the indifference curve so that the consumer buys more Pepsi.
D)movement along the indifference curve so that the consumer buys less Pepsi.

Question

Quizplus · Accepted Answer

When the price of pizza falls, the substitution effect will lead consumers to substitute away from Pepsi towards pizza, causing a movement along the indifference curve. As a result, consumers will buy less Pepsi. Therefore, the correct answer is D.

Pepsi and Pizza Are Normal Goods