Consider the income and substitution effects of price changes.The substitution effect is the change in quantity demanded that occurs
A)as a result of a change in absolute prices,with real income held constant.
B)as a result of a change in relative prices with money income held constant.
C)as a result of a change in relative prices,with real income held constant.
D)when one good is substituted for another.
E)with a change in the relative prices of two or more goods.

Question

Quizplus · Accepted Answer

The substitution effect is the change in quantity demanded as a result of a change in relative prices, with real income held constant. This means that the consumer is not affected by changes in their purchasing power due to changes in prices. The substitution effect occurs when a consumer switches from one good to another that has become relatively cheaper.

Consider the Income and Substitution Effects of Price Changes