Question

Which of the following describes the substitution effect of a price change?A) The change in demand that results from a change in price, making the good more or lessexpensive relative to other goods, holding constant the effect of the price change onconsumerpurchasing power.B) The change in quantity demanded of a good that results from the effect of a change inprice on consumer purchasing power, holding everything else constant.C) The change in quantity demanded of a good that results from the change in the price of asubstitute for the good.D) The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power

Answer 1

Answer:

The answer is D. The change in quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power

Explanation:

Substitution effect is a concept in which, as the price of a good or service increases, less of the good or service is substituted for other less expensive.

For example, if the price of Pepsi were to rise, the substitution effect would cause the consumer to buy less of it and substitute more coca-cola for now relatively more expensive Pepsi.

Option A. is wrong because we are talking about the quantity demanded and not just demand. (Please take note).