Figure 21-13
-Refer to Figure 21-13. When the price of X is $40, the price of Y is $10, and the consumer's income is $80, the consumer's optimal choice is C. Then the price of X decreases to $10. The substitution effect can be illustrated as the movement from
A)C to E.
B)C to D.
C)D to E.
D)E to C.

Question

Figure 21-13 
-Refer to Figure 21-13. When the price of X is $40, the price of Y is $10, and the consumer's income is $80, the consumer's optimal choice is C. Then the price of X decreases to $10. The substitution effect can be illustrated as the movement from
A)C to E. 
B)C to D. 
C)D to E. 
D)E to C.

Quizplus · Accepted Answer

The substitution effect refers to the change in consumption patterns due to a change in the relative prices of goods, holding the consumer's utility constant. When the price of X decreases to $10, the consumer will tend to buy more of X and less of Y because X has become relatively cheaper. The movement from point C to D illustrates this change, as it shows a change in the consumption bundle due to the relative price change, before considering the income effect.

Figure 21-13 -Refer to Figure 21-13. When the Price of X Is