Question

The ________________ arises when a price changes because consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price.
a. substitution effect
b. backward-bending supply curve
c. income effect
d. preferences effect

Answer 1

Answer: Substitution Effect.

Explanation:

The substitution effect occurs when consumers switch from one product to another similar product that is of a lower price. The substitution effect majorly affects price sensitive consumers in a market.