When the price of one good decreases,the associated substitution effect is represented by a:
A) move from one indifference to a higher indifference curve since real income is now higher.
B) move from one indifference to a lower indifference curve since real income is now lower.
C) move along a given indifference curve holding real income constant.
D) move along a given indifference curve since real income increases.

Question

Quizplus · Accepted Answer

The associated substitution effect when the price of one good decreases is represented by a move along a given indifference curve holding real income constant. This is because the decrease in price makes the good relatively less expensive compared to other goods, making consumers more likely to substitute this good for others while keeping their overall level of satisfaction (indifference) constant.

When the Price of One Good Decreases,the Associated Substitution Effect