Question

When the price of one good changes relative to a substitute, causing demand for the now relatively cheaper good to rise while demand for the other falls, this phenomenon is best described as which effect?

Q: Answer-When the price of one good changes relative to a substitute, causing demand for the now relatively c...

The Substitution Effect occurs when a price change in one good, relative to its substitutes, makes consumers switch towards the relatively cheaper option, raising its demand and lowering demand for the costlier substitute.

A Substitution Effect

B Income Effect

C Law of Diminishing Marginal Utility

D Cross Demand

E Giffen Effect

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When the price of one good changes relative to a substitute, causing demand for the now relatively cheaper good to rise while demand for the other falls, this phenomenon is best described as which effect?

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