-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is
$2) If the price of a milkshake decreases to $1, the substitution effect is the movement from point _______ to point _______.
A) b; d
B) a; b
C) b; c
D) a; c

Question

-In the above figure, income is $8, the price of a soft drink is $1, and the initial price of a milkshake is
$2) If the price of a milkshake decreases to $1, the substitution effect is the movement from point _______  to point _______.
A) b; d 
B) a; b 
C) b; c 
D) a; 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 a milkshake decreases from $2 to $1, it becomes relatively cheaper compared to a soft drink, which remains at $1. Consumers will substitute milkshakes for soft drinks, moving from their initial consumption point (a) to a new point (b) that reflects the change in relative prices before any income effect is considered.

-In the Above Figure, Income Is $8, the Price of a Soft