Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The consumer will buy less of the good whose price increased and more of a substitute good.
B
The consumer will maintain their original purchasing choices regardless of the price change.
C
The consumer will buy more of the good whose price increased due to increased utility.
D
The consumer will decrease their total expenditure on all goods.
Understanding the Answer
Let's break down why this is correct
Answer
When a consumer faces a budget constraint and the price of one good increases, they will likely shift their spending towards a cheaper substitute. This is known as the substitution effect, where the consumer replaces the more expensive item with a less expensive one to maintain their overall satisfaction without exceeding their budget. For example, if the price of apples rises, a consumer might buy more oranges instead, as they provide similar benefits at a lower cost. This change helps the consumer maximize their utility, or satisfaction, given their limited budget. Ultimately, the consumer adjusts their choices to get the most value for their money.
Detailed Explanation
When the price of a good goes up, people often look for cheaper options. Other options are incorrect because Some might think that people will keep buying the same things no matter what; It's a common mistake to think that higher prices mean more value.
Key Concepts
Utility function
Substitution effect
Topic
Marginal Utility and Budgeting
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.