The Substitution Effect of a Price Change Is Described by Which

question 36

Multiple Choice

The substitution effect of a price change is described by which of the following statements?

• A) When the price of a good falls, consumers have more real income with the same nominal income and will now buy more of the good.
• B) When the price of a good falls, consumers will now substitute this lower priced good for relatively higher priced goods.
• C) The substitution effect is the relative change in the amount of a good consumed when the price of another good changes.
• D) The substitution effect shows how a change in income will affect the quantity of a good purchased.

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Definitions:

Least Squares Line

A straight line that minimizes the sum of the squares of the differences between observed and theoretical values.

Scatter Diagram

A graphical representation of two variables that shows how much one variable is affected by another by displaying data points on a horizontal and vertical axis.

Linearly Related

Describes the direct proportional relationship between two variables, where a change in one variable is associated with a consistent change in another.

Least Squares Line

A line of best fit through a scatter plot of data points that minimizes the sum of the squares of the vertical distances of the points from the line.