Asked by
Diana Karely
on Nov 16, 2024
Verified
A consumer consumes two normal goods, popcorn and Pepsi. The price of Pepsi rises. The substitution effect, by itself, suggests that the consumer will consume
A) more popcorn and more Pepsi.
B) less popcorn and less Pepsi.
C) more popcorn and less Pepsi.
D) less popcorn and more Pepsi.
Substitution Effect
The economic principle that as prices rise or income decreases, consumers replace more expensive items with less costly alternatives.
Normal Goods
Goods for which demand increases as consumer income rises, and decreases when consumer income falls.
- Analyze how changes in income and prices affect consumer choices.
- Understand the influence of income and substitution effects on the behavior of consumers.
Verified Answer
KM
Learning Objectives
- Analyze how changes in income and prices affect consumer choices.
- Understand the influence of income and substitution effects on the behavior of consumers.