The Substitution Effect Says

question 71

Multiple Choice

The substitution effect says:

• A)when the price of a beef increases, consumers will tend to substitute with chicken.
• B)when the price of a beef increases, consumers will tend not to substitute.
• C)when the price of a beef increases, consumers will tend to eat more beef.
• D)when the price of a beef decreases, consumers will tend to substitute with chicken.
• E)none of the above.

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Definitions:

Income

The financial gain received by an individual or entity, usually in the form of wages, salaries, or returns from investments.

MPC

Marginal Propensity to Consume, which indicates the proportion of additional income that a household is likely to spend on consumption rather than saving.

Disposable Income

The capital available to households for deploying into savings and spending post-tax.

Consumption

The act of using goods and services by households that leads to a decrease in their stock.