The Substitution Effect of an Increase in the Price of Peaches

question 287

Multiple Choice

The substitution effect of an increase in the price of peaches is

• A)the change in the quantity demanded that results from a change in the price of peaches, making peaches more expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.
• B)the change in the demand for nectarines (a substitute good)that results when peaches become more expensive relative to nectarines, holding constant the effect of the price change on consumer purchasing power.
• C)the change in the quantity of peaches demanded that results from the effect of the change in the price of peaches on the consumer's purchasing power.
• D)the change in the demand for peaches that results when the price of peaches increases.

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Definitions:

System I Thinking

A term from dual-process theory referring to fast, automatic, emotional, and subconscious thought processes.

Utility Theory

A theory in economics and finance that describes how individuals choose among different options or actions based on their expected happiness or satisfaction.

Framing

The way a decision is phrased or the way options are described. Seemingly peripheral aspects of the framing can influence decisions by changing the point of reference.

Double-Or-Nothing

A gamble or bet in which the stakes are either doubled or lost entirely.