QUESTION 20 When the price of a good changes, the substitution effect occurs bec
ID: 1193257 • Letter: Q
Question
QUESTION 20
When the price of a good changes, the substitution effect occurs because:
consumers have an incentive to substitute irrational behavior for rational behavior.
the consumers’ real income measured in terms of that good changes.
the relative price of that good changes compared to other goods in the consumption bundle.
the marginal utility of that good decreases.
the total utility of that good decreases.
a.consumers have an incentive to substitute irrational behavior for rational behavior.
b.the consumers’ real income measured in terms of that good changes.
c.the relative price of that good changes compared to other goods in the consumption bundle.
d.the marginal utility of that good decreases.
e.the total utility of that good decreases.
Explanation / Answer
(c) the relative price of that good changes compared to other goods in the consumption bundle.
the substitution effect. If the price of one good increases while all other prices remain constant, then the good becomes more costly relative to other goods. Many consumers will respond by substituting a cheaper good for the now more expensive good, so the quantity demanded of the original good decreases. An increase in the price of one good encourages consumers to switch to other goods. vice versa
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.