The substitution effect:
A) Predicts that taxpayers will work harder to pay for consumer products when tax rates increase.
B) Is one of the effects considered in static forecasting.
C) Results in the government collecting more aggregate tax revenue than under the income effect.
D) Is typically more descriptive for taxpayers with lower disposable income.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

The substitution effect refers to the change in consumption patterns due to a change in relative prices, not directly related to tax rates or government revenue.

The Substitution Effect