Question

Shopping at the clothing store Abercrombie & Fitch instead of Ann Taylor best illustrates which of the following:

A) Elasticity of demand
B) Substitution effect
C) Income effect
D) Diminishing marginal utility

Answer 1

Choosing Abercrombie & Fitch over Ann Taylor demonstrates the substitution effect, where consumers opt for a less expensive alternative due to changes in relative prices.

Step-by-step explanation:

Shopping at the clothing store Abercrombie & Fitch instead of Ann Taylor best illustrates the concept of the substitution effect. This economic principle occurs when consumers replace a more expensive item with a less expensive alternative due to a change in relative prices, with their buying power remaining the same. In the context of the question, choosing Abercrombie & Fitch over Ann Taylor indicates a shift in preference towards the brand that may be perceived as more affordable or providing better value for money, which is a classic example of the substitution effect in action.