The substitution effect for a fall in the price of a good ( all things equal)...

The substitution effect for a fall in the price of a good ( all things equal) is given by (a) a movement up a given indifference curve ( b) a movement from a lower to a higher indifference curve , ( c) a movement down a given indifference curve, or (d ) any of the above.

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Expert Solution

Answer = Correct option is D

Reason = Since here it is not mentioned that substitution effect is applied on good on which axis that is , price of good on X axis or price of good on Y axis. So we cannot say that movement on indifference curve will upward or downward. So the answer will be any of the above.

But suppose if the substitution effect is applied on good of X axis, then movement on indifference curve will be upward and if the substitution effect is applied on good of Y axis, then movement on indifference curve will be downward.

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Rahul Sunny answered 1 year ago

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