Which of the following describes the substitution effect?(1 point)

Question

Responses

As wages increase, an individual's total potential income rises, making him less likely to choose leisure over labor. As a consumer increases their income they purchase more desserts, a normal good.
As wages increase, an individual's total potential income rises, making him less likely to choose leisure over labor. As a consumer increases their income they purchase more desserts, a normal good.

As wages increase, an individual's leisure becomes more costly, making him less likely to choose leisure over labor. As the price of Coca Cola rises consumers purchase more Sprite.
As wages increase, an individual's leisure becomes more costly, making him less likely to choose leisure over labor. As the price of Coca Cola rises consumers purchase more Sprite.

As wages increase, an individual's total potential income rises, making him more likely to choose leisure over labor. A consumer buys more milk each time they purchase cereal.
As wages increase, an individual's total potential income rises, making him more likely to choose leisure over labor. A consumer buys more milk each time they purchase cereal.

As wages increase, an individuals leisure becomes less costly, making him more likely to choose leisure over labor. As hamburgers becomes cheaper consumers purchase more steak.

Answer 1

The correct response that describes the substitution effect is:

"As wages increase, an individual's leisure becomes more costly, making him less likely to choose leisure over labor. As the price of Coca Cola rises consumers purchase more Sprite."

This option captures the essence of the substitution effect: when the price of one good increases (or the cost of leisure in terms of forgone wages), consumers will substitute it with another good or option (more labor instead of leisure).