Question

What is the substitution effect of a price change? Consumers will buy more of the good whose relative price has risen and less of the good whose relative price has fallen. Consumers will consume less of the good whose relative price has risen and more of the good whose relative price has fallen. When prices fall, consumers will have more purchasing power and buy more of all goods. When prices fall, consumers will have more purchasing power and buy more of th

Answer 1

Answer:

Consumers will consume less of the good whose relative price has risen and more of the good whose relative price has fallen.

Explanation:

The substitution effect refers to the change in the consumption of a good, due to the variation in its price, for the consumption of another good that becomes relatively cheaper. Thus, in the substitution effect if prices increase, consumers will consume a smaller amount of a given good, since its price has risen and a larger amount of the good whose relative price has become cheaper.