Question

The substitution effect is the change in the quantity demanded of a good that results from​ ______________, holding constant the effect of the price change on consumer purchasing power.

a. the tendency of people to be unwilling to sell something they own

b. a change in price making the good more or less expensive relative to other goods

c. a change in the price of a substitute for the good

d. an increase in the usefulness of a product as the number of consumers who use it increases

Answer 1

b. A change in price making the good more or less expensive relative to other goods.

The substitution effect says that as prices rise for one product, consumers will replace it with a similar less expensive alternative product.