What is the substitution effect of an increase in the price of peaches?
A)The change in the quantity demanded that results from a change in the price of peaches making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
B)The change in the demand for nectarines (a substitute good)that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power.
C)The change in the quantity demanded of peaches that results from the effect of the change in the price of peaches on the consumer's purchasing power.
D)The change in the demand for peaches that results when the price of peaches increases.

Question

Quizplus · Accepted Answer

The substitution effect refers to the change in the quantity demanded of a good when its price changes relative to the prices of other goods. In this case, an increase in the price of peaches makes them relatively more expensive compared to other goods, so consumers may choose to substitute other fruits for peaches, leading to a decrease in the quantity demanded of peaches.

What Is the Substitution Effect of an Increase in the Price