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21 April, 22:49

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes A. an inferior good. B. the rationing function of prices. C. the substitution effect. D. the income effect.

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  1. 21 April, 23:17
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    The right answer is Option C - The substitution effect. This tendancy mainly happens among the middle class or lower income people. They can't afford the sudden fluctuations in the market hike price. So they naturally move towards other alternatives which offer at a low price rate. This tendency always negatively affect the business of sellers, who provides goods or services comparatively at a high price. But at the same time we've to understand one imporatnt thing that most of these substituted products are happens to be an inferior quality product. But most of the time these substitution effect will not affect the buying habits of luxurious people. They purchase whichever product they like, beacuse they can afford it.
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