When the Price of a Product Rises, Consumers with a Given

question 78

Multiple Choice

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes

• A) an inferior good.
• B) the rationing function of prices.
• C) the substitution effect.
• D) the income effect.

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Definitions:

Prices

The sum of money anticipated, needed, or provided as payment for an item.

Utility Function

A mathematical representation that ranks preferences over a set of goods and services, showing the level of satisfaction or utility a consumer receives.

Income

Revenue received, on a consistent basis, from occupational or investment sources.

Preferences

Preferences refer to an individual's subjective tastes or desires, ranking goods or outcomes in order of choice or desirability in decision making or consumption.