What is the substitution effect?

a. All goods have a substitute, and the rise in price for substitutes causes a rise in supply for goods.

b. When the price of one good falls, the demand for complements for that good rises, and vice versa.

c. When the price of one good rises, the demand for substitutes for that good rises, and vice versa.

d. All goods have a complement, and the rise in price for substitutes causes a fall in supply for goods.

Question

Carissa Parks

Social Studies

6 November, 07:21

What is the substitution effect?

a. All goods have a substitute, and the rise in price for substitutes causes a rise in supply for goods.

b. When the price of one good falls, the demand for complements for that good rises, and vice versa.

c. When the price of one good rises, the demand for substitutes for that good rises, and vice versa.

d. All goods have a complement, and the rise in price for substitutes causes a fall in supply for goods.

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Answers (1)

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Irene Foster · Answer 1

The substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer, the other being the income effect.