SSC MTS EXAM

SSC

GENERAL ECONOMICS

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Consuming more of one good because of a change in price of another good is known as the
A
income effect
B
substitution effect
C
elasticity effect
D
demand effect
Explanation: 

Detailed explanation-1: -What is the Substitution Effect? The substitution effect refers to the change in demand for a good as a result of a change in the relative price of the good compared to that of other substitute goods. For example, when the price of a good rises, it becomes more expensive relative to other goods in the market.

Detailed explanation-2: -The substitution effect is the change that would occur if the consumer were required to remain on the original indifference curve; this is the move from A to B. The income effect is the simultaneous move from B to C that occurs because the lower price of one good in fact allows movement to a higher indifference curve.

Detailed explanation-3: -Hicksian Substitution Effect A substitution effect shows change in consumer’s optimal consumption combination as a result of change in the relative price alone, real income of the consumer remaining unchanged.

There is 1 question to complete.