Home › AP Microeconomics › Economics › Consumer Choices › Under the substitution effect, consumers consume…
Under the substitution effect, consumers consume more of the good that is:
ASold in smaller packs
BBought least often
CRelatively lower priced
DRelatively higher priced
Answer & Solution
Correct answer: C. Relatively lower priced
1. The substitution effect works in both directions at once.
2. A price change gives an incentive to consume less of the relatively higher priced good.
3. It also gives an incentive to consume more of the good with a relatively lower price.
4. Consumers substitute toward whatever has become comparatively cheap.
_Source: OpenStax Principles of Microeconomics for AP Courses 2e (CC BY 4.0), Ch 6 'Consumer Choices'_
Related questions
A price rise for a normal good makes both effects push consumption of that good in which dDiminishing marginal utility means the total utility from extra units continues to rise buConsumer equilibrium is found by comparing across goods the marginal utility:The negative slope of a budget constraint reflects that buying more of one good means:A budget constraint line with a rise of minus 8 over a run of 4 has a slope of:If overnight stays is an inferior good, the consumer instead makes a choice like:With a new budget constraint, a consumer chooses point N if both goods are:Under the income effect, reduced buying power leads to buying less of a good when the good