Question

With fall in price of a commodity, demand of the commodity increases as it becomes relatively cheaper in comparison to other commodities. This effect is known as ______.

Options

• Substitution Effect

• Income Effect

• Law of Demand

• Law of Diminishing Returns

Answer 1

With fall in price of a commodity, demand of the commodity increases as it becomes relatively cheaper in comparison to other commodities. This effect is known as Substitution Effect.

Explanation:

When a good becomes relatively cheaper than alternatives, consumers substitute it for other goods. That response is the substitution effect, not the income effect or a production law.