Question

Suppose you maximize your utility by consuming 3 slices of pizza and 2 ice cream cones. The price of pizza increases. Even if you were given enough income to afford the original bundle of goods, you are likely to choose to consume less pizza and more ice cream. Economist refer to this as the____________

Answer 1

Answer:

substitution effect

Explanation:

The substitution effect refers to a situation where customers will stop buying one product if its price rises, and switch to buy a cheaper product that can be a direct competitor or a substitute good. For example, if the price of coffee rises significantly, many customers may switch to buying tea.