Refer to Figure 4.2.1 above. Which of the following moves represents the substitution effect?

A) The move from F₁ to E
B) The move from E to F₂
C) The move from F₁ to F₂
D) A move from F₁ to F₂ and then to E

Substitution Effect

Substitution Effect occurs when consumers replace more expensive items with cheaper alternatives in response to changes in relative prices, holding their overall satisfaction constant.

Relative Prices

Relative prices express the price of one good or service in comparison to another, revealing their value relative to each other rather than in absolute monetary terms.