Figure 21-12
-Refer to Figure 21-12.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the
A) substitution effect.
B) income effect.
C) budget effect.
D) price effect.

Question

Figure 21-12 
-Refer to Figure 21-12.If the consumer is currently at point A in the figure,a movement to point B as a result of a decrease in the price of potato chips represents the
A) substitution effect. 
B) income effect. 
C) budget effect. 
D) price effect.

Quizplus · Accepted Answer

A movement from point A to B as a result of a decrease in price represents the substitution effect, which is the change in the quantity demanded due to the change in the relative price of a good. The income effect is the change in the quantity demanded due to a change in income, the budget effect refers to the impact of changes in income and prices on a consumer's budget constraint, and the price effect is a combination of both the income and substitution effects. However, in this scenario, only the substitution effect is applicable.

Figure 21-12 -Refer to Figure 21-12.If the Consumer Is Currently at Point