Question

Juan likes both hot dogs and burritos. All else equal, when the price of hot dogs rises, he buys more burritos.

This can best be explained by:

A. the income effect.
B. increasing marginal cost.
C. the substitution effect
D. diminishing marginal utility

Answer 1

The correct answer is letter "C": the substitution effect.

Step-by-step explanation:

The substitution effect takes place within a market when the increase in the price of a given good or service implies its decrease in its quantity demanded but the increase in the demand of others as the result of replacement. The product substituted and the replacement good are not complementary.