The reason the substitution effect works to encourage a consumer to buy less of a product when its price increases is that
A)the real income of the consumer has been increased.
B)the real income of the consumer has been decreased.
C)the product is now relatively more expensive than it was before.
D)other products are now relatively more expensive than they were before.

Question

Quizplus · Accepted Answer

The substitution effect occurs because when the price of a product increases, it becomes relatively more expensive compared to other goods, leading consumers to substitute it with cheaper alternatives.

The Reason the Substitution Effect Works to Encourage a Consumer