The change in consumption that results when a price change moves the consumer along a given indifference curve is known as the ?
Correct answer: C. substitution effect
- A. inferior effect
- B. normal effect
- C. substitution effect
- D. complementary effect
- E. income effect
Explanation
A price change has a substitution effect when it changes the relative attractiveness of goods and moves the consumer along the same indifference curve. The income effect instead reflects the change in purchasing power and moves the consumer to another indifference curve.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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