**Text:**Consider the change in the price of a book depicted in the diagram. The original budget line is Bc. The new budget line is Bd. As a result of this price change, the substitution effect can be represented by a movement from**Options:**- A. point A to point E.- B. point A to point G.- C. point F to point G.- D. point A to point F._Reset Selection_**Diagram Explanation:**The diagram shows a budget constraint graph with three budget lines and several marked points. The vertical axis is labeled "Movies (per month)" and the horizontal axis is labeled "Books (per month)." 1. **Budget Lines:** - The original budget line is labeled Bc and is represented by the dashed line starting from a point on the vertical axis to C on the horizontal axis. - The new budget line is labeled Bd and is represented by a solid line starting from a different point on the vertical axis to D on the horizontal axis. 2. **Points:** - Point A is located on the original budget line Bc. - Point E is located on a line parallel to the new budget line Bd. - Points F and G are also marked on the graph and correspond to different potential substitution movements.An arrow indicates the shift in the budget line from Bc to Bd, suggesting the effect of a decrease in the price of books.

The substitution effect is the effect in the economy in which the consumers substitute one good (X) for the other (Y) when the price of the other (Y) good increases in the economy. In this case, it is given that the original budget line was BC and the new one is BD. Thus, it indicates that due to the price change in the economy, for the goods, the economy was able to consume more books.The substitution effect allows the individual to consume more of the good which has lower prices and vice versa. Thus, a substitution effect will be represented by a movement along the same indifference curve which indicates that point A to point E will represent the substitution effect. So, the correct answer is option ‘A’.

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Economics

Consider the change in the price of a book depicted in the diagram. The original budget line is Bc. The new budget line is Bd. As a result of this price change, the substitution effect can be represented by a movement from F C. Books (per month) OA. point A to point E. OB. point A to point G. OC. point F to point G. OD. point A to point F. Movies (per month)

Consider the change in the price of a book depicted in the diagram. The original budget line is Bc. The new budget line is Bd. As a result of this price change, the substitution effect can be represented by a movement from F C. Books (per month) OA. point A to point E. OB. point A to point G. OC. point F to point G. OD. point A to point F. Movies (per month)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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