Question

Tell the substitution effect of a price change:

Answer 1

Answer:

Will always result in the consumer buying less of a good at a higher price ( C )

Explanation:

The substitution effect of a price change is felt more when a good or service has a competent substitute that will serve similar or exactly the same purpose that the good or service serves.

The change in the price of good or service will affect the demand of such good or service and this can be in two ways. the demand will go up if the price of the good or service is at a lower price while the demand of the good or service will be decreased if the price of the good is a t higher price.

The substitution effect of a price is also seen as the reaction of  buyers/consumers towards the change in prices of goods and services which have competent substitutes in the market.

Answer 2

Answer:

The correct option is C,will result in the consumer buying less of a good at a higher price

Explanation:

When there are close substitutes for a product,a rational consumer will switch to an alternative good or service when the price of the good rises.

This ultimately is line with the law of the demand that the higher price the lower the quantity demanded and vice versa.

Hence, the substitution effect works in such a way that the product that has a lower price compared to its rival commodities catches the attention of the consumers much more due to its lower price nature.