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.
Correct Answer:
Verified
Correct Answer:
Verified
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