What Is the Substitution Effect of an Increase in the Price

question 134

Multiple Choice

What is the substitution effect of an increase in the price of Cornflakes?

• A)The decrease in the demand for Cornflakes when its price rises.
• B)The result that consumers will now switch to a substitute good such as Cheerios, and the demand curve for Cornflakes shifts to the left.
• C)The fact that the higher price of Cornflakes lowers consumers' purchasing power, holding money income constant.
• D)The fact that the higher price of Cornflakes relative to its substitutes, such as Cheerios, causes consumers to buy less Cornflakes.

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Definitions:

Inflation Rate

The percentage rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Contingency Planning

The process of preparing for unexpected events by developing strategies to address and mitigate risks.

Alternative Courses

Different paths or strategies that can be chosen in decision-making processes to achieve a specific goal.

Actions

Deeds or steps taken in order to achieve a specific purpose.