ECONOMICS
TECHNOLOGY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The item becomes less and less popular as its price drops.
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The substitutes for the item also suffer a drop in prices.
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Consumers buy the item as a substitute for other things.
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Consumers buy the item even if they do not particularly want it.
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Detailed explanation-1: -The substitution effect states that as prices rise, or incomes fall, consumers replace more-costly goods with cheaper alternatives. The substitution effect measures the change in spending patterns of consumers when there’s a change in price.
Detailed explanation-2: -The substitution effect states that when the price of a good decreases, consumers will substitute away from goods that are relatively more expensive to the cheaper good.
Detailed explanation-3: -The substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises. When the price of a product or service increases but the buyer’s income stays the same, the substitution effect generally kicks in.
Detailed explanation-4: -The demand for a good increases, if the price of one of its substitutes rises. The demand for a good decreases, if the price of one of its substitutes falls.
Detailed explanation-5: -The substitution effect occurs when the price of a good falls, consumers will substitute it for other goods, which are now relatively more expensive.