In economics substitution effect ______________
In economics substitution effect ______________
The correct option is B Isolates the effect of change in relative prices holding real income constant
The substitution
effect is based on
the idea that as prices rise, consumers will replace more expensive items with
cheaper substitutions or alternatives, assuming income remains the same. ...
For example, when the price of
your favorite shampoo goes up a dollar, you decide to try a cheaper brand.
The income effect is the change in consumption of goods by consumers
based on their income. The substitution effect happens when consumers replace cheaper items with more
expensive ones when their financial conditions change In microeconomics,
the income effect is the change in demand for a good or service caused by
a change in a consumer's purchasing power resulting from a change in real income hence option ‘a’
is correct answer.
The substitution effect is based on the idea that as prices rise, consumers will replace more expensive items with cheaper substitutions or alternatives, assuming income remains the same. ... For example, when the price of your favorite shampoo goes up a dollar, you decide to try a cheaper brand. The income effect is the change in consumption of goods by consumers based on their income. The substitution effect happens when consumers replace cheaper items with more expensive ones when their financial conditions change In microeconomics, the income effect is the change in demand for a good or service caused by a change in a consumer's purchasing power resulting from a change in real income hence option ‘a’ is correct answer.
