The Substitution Effect of a Change in the Price of Bananas

question 195

Multiple Choice

The substitution effect of a change in the price of bananas refers to the way in which a change in the

• A)price of a substitute affects the demand for bananas
• B)price of bananas affects the ability to buy them
• C)relative price of bananas changes demand for them
• D)relative price of bananas changes the quantity demanded of bananas
• E)price of a substitute affects the quantity demanded of bananas

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Definitions:

Price Discrimination

The practice of selling the same product to different buyers at different prices, based on factors other than cost.

Consumer Surplus

The difference between the total amount consumers are willing to pay for a good or service and the actual amount they pay.

Producer Surplus

The difference between the amount producers are willing to sell a good for and the actual amount they receive by selling it at the market price.

Direct Price Discrimination

The practice of charging different prices to different consumers for the same product or service, based on the buyer's willingness to pay.