What effect is working when the price of a good falls and consumers tend to buy it instead of other goods ?
Correct answer: C. The substitution effect
- A. The ceteris paribus effect
- B. The diminishing marginal utility effect.
- C. The substitution effect
- D. The income effect
Explanation
The substitution effect occurs when a fall in a good's price makes it relatively cheaper than alternatives, leading consumers to substitute toward it. The income effect instead reflects the increase in consumers' real purchasing power.
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