Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumers will buy more of the cheaper good and less of the more expensive alternatives.
B
Consumers will buy less of the cheaper good and more of the more expensive alternatives.
C
Consumers will maintain their purchasing behavior regardless of the price change.
D
Consumers will only buy the cheaper good if their income increases.
Understanding the Answer
Let's break down why this is correct
Answer
When the price of a good decreases, the substitution effect happens because consumers will often choose to buy more of that good instead of other similar goods. For example, if the price of apples drops, people might buy more apples and less of oranges since apples have become cheaper relative to oranges. This change occurs because consumers want to get the best value for their money, so they substitute the more expensive option for the cheaper one. As a result, the quantity demanded of the cheaper good increases while the demand for the more expensive good decreases. This behavior helps consumers maximize their utility, or satisfaction, from their purchases.
Detailed Explanation
When a good gets cheaper, people tend to buy more of it. Other options are incorrect because This answer suggests that people buy less of the cheaper good, which is not true; This answer implies that price changes don't affect buying habits, which is incorrect.
Key Concepts
substitution effect
Topic
Utility Maximization After Price Change
Difficulty
easy level question
Cognitive Level
understand
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