Question

What is the substitution effect? A. All goods have a substitute, and the rise in price for substitutes causes a rise in supply for goods. B. When the price of one good falls, the demand for complements for that good rises, and vice versa. C. When the price of one good rises, the demand for substitutes for that good rises, and vice versa. D. All goods have a complement, and the rise in price for substitutes causes a fall in supply for goods.

Answer 1

Answer:

C. When the price of one good rises, the demand for substitutes for that good rises, and vice versa.

Explanation:

substitution effect is the term given to the situation where when the price of one good rises, the demand for substitutes for that good rises, and vice versa.

The substitution effect can be defined as the decrease in demand for a product that can be attributed to consumers switching to cheaper alternatives when its price rises.

In summary, demand for a product's substitute rises when its price rises and its demand falls

There are several reasons why a product may lose market share but the substitution effect is purely a reflection of frugality. If a brand raises its price, consumers will generally switch to a cheaper alternative. If beef prices rise, many consumers will start eating more chicken instead.

Answer 2

Answer:

C. is correct

Explanation:

When the price of one good rises, the demand for substitutes for that good rises, and vice versa