Asked by Sydney Horton on Apr 29, 2024
Verified
The substitution effect
A) is generally so weak that its effect cannot be predicted.
B) for an increase in the relative price of a good is sometimes positive but sometimes negative.
C) refers to the change in the quantity demanded of a good due to a change in its relative price.
D) measures the change in the quantity of a good demanded brought about by a change in real income associated with a change in the price of the good.
Substitution Effect
The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper ones.
Relative Price
Relative Price is the price of one good or service compared to another, usually reflecting its value in terms of another item rather than its absolute price in currency.
Quantity Demanded
The total amount of a good or service that consumers are willing and able to purchase at a given price point.
- Recognize the influence of price variations on the substitution and income effects.
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Learning Objectives
- Recognize the influence of price variations on the substitution and income effects.
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