Asked by Walter Enrique on Apr 27, 2024
Verified
The substitution effect always involves a change in consumption in the _____ direction as (to) the _____ change.
A) same;budget
B) same;price
C) opposite;price
D) opposite;budget
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 alternatives.
- Detail how substitution and income effects shape consumer choices and market demand.
Verified Answer
ML
Matthew LorentzMay 01, 2024
Final Answer :
C
Explanation :
The substitution effect occurs when a change in the relative prices of two goods leads to a consumer substituting one good for another. This substitution effect always involves a change in consumption in the opposite direction as the price change. For example, if the price of good X increases relative to the price of good Y, consumers will shift their consumption towards good Y, leading to a decrease in the quantity demanded of good X and an increase in the quantity demanded of good Y. This is why the answer is C - opposite direction as the price change.
Learning Objectives
- Detail how substitution and income effects shape consumer choices and market demand.
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