According to the Substitution Effect, If the Price of a Product

question 42

Multiple Choice

According to the substitution effect, if the price of a product goes down

• A) the consumer will buy more of the good at the lower price than at a higher price, creating a downward sloping demand curve.
• B) the consumer will buy more of the good at a lower price than at a higher price, creating a horizontal demand curve.
• C) the consumer will not change the level of purchases of the good when the price changes, making the demand curve a vertical line.
• D) the real income of the consumer will increase, causing the consumer to want to buy more of the good, creating a downward sloping demand curve.

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Definitions:

Price Effect

The change in the quantity demanded of a good or service caused by a change in its price.

Deadweight Loss

The loss of economic efficiency that occurs when the equitable market outcome is not achieved, often due to taxes, subsidies, or artificially imposed prices like price ceilings or floors.

Perfect Competition

A market structure characterized by a large number of small firms, a homogeneous product, free entry and exit, and perfect information that leads to firms being price takers.

Short-Run Supply Curve

A graphical representation showing the quantity of goods a firm is willing and able to supply at different prices in a given short-term period, holding some factors constant.