Pepsi and pizza are normal goods. When the price of pizza rises, the substitution effect causes Pepsi to be relatively
A)more expensive, so the consumer buys more Pepsi.
B)more expensive, so the consumer buys less Pepsi.
C)less expensive, so the consumer buys more Pepsi.
D)less expensive, so the consumer buys less Pepsi.

Question

Quizplus · Accepted Answer

When the price of pizza rises, consumers will substitute away from pizza to other goods, making Pepsi relatively less expensive compared to pizza, leading to an increase in the quantity of Pepsi demanded.

Pepsi and Pizza Are Normal Goods