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2 April, 04:41

The substitution effect is the change in consumption due to: A. a change in utility. B. a change in income. C. a change in the availability of complements. D. a change in relative prices.

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  1. 2 April, 04:46
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    Option (D) is correct.

    Explanation:

    There are two kinds of effect:

    (1) Substitution effect : It is related to the relative price changes.

    (2) Income effect: It is related to the change in purchasing power.

    The substitution effect refers to the change in the consumption of a good with any change in the relative price of the good. If there in an increase in the price of one good then as a result the demand for that good decreases and the demand for other substitute good increases because of the lower price.
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