Asked by Abigail Stewart on Jul 21, 2024
Verified
According to the substitution effect,a decrease in the price of a product leads to an increase in the quantity of the product demanded because buyers:
A) have more real income.
B) purchase fewer substitute goods.
C) purchase more of the now less expensive good.
D) purchase more complementary goods.
Substitution Effect
The substitution effect occurs when consumers change their consumption of goods in response to changes in relative prices, substituting cheaper goods for more expensive ones.
Quantity Demanded
Quantity demanded refers to the amount of a good or service that consumers are willing and able to purchase at a given price.
- Illustrate the effects of changing income and substitution possibilities on consumer decision processes and demand levels.
Verified Answer
LH
Linsey HunterJul 23, 2024
Final Answer :
C
Explanation :
The substitution effect suggests that as the price of a good falls, it becomes relatively cheaper compared to its substitutes, causing consumers to substitute away from those substitutes and towards purchasing more of the cheaper good, leading to an increase in the quantity demanded. The decrease in price does not necessarily lead to an increase in real income or the purchase of complementary goods.
Learning Objectives
- Illustrate the effects of changing income and substitution possibilities on consumer decision processes and demand levels.
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