Questions: Suppose the price of a BMW falls. Which of the following most accurately explains the law of demand based on the substitution effect? - BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy more BMWs. - BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs. - BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy fewer BMWs. - BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs.

Suppose the price of a BMW falls.

Which of the following most accurately explains the law of demand based on the substitution effect?
- BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy more BMWs.
- BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs.
- BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy fewer BMWs.
- BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs.

Transcript text: Suppose the price of a BMW falls. Which of the following most accurately explains the law of demand based on the substitution effect? - BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy more BMWs. - BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs. - BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy fewer BMWs. - BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs.

Solution

Answer

The answer is BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy more BMWs.

Explanation

Option 1: BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy more BMWs.

This option accurately describes the substitution effect in the context of the law of demand. When the price of BMWs falls, they become relatively cheaper compared to other cars. As a result, consumers are likely to substitute other cars with BMWs, leading to an increase in the quantity demanded for BMWs.

Option 2: BMWs become relatively less expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs.

This option does not align with the substitution effect. If BMWs become cheaper relative to other cars, consumers would typically buy more BMWs, not the same number.

Option 3: BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy fewer BMWs.

This option is incorrect because it describes a situation where the price of BMWs increases, which is not the case in the given scenario.

Option 4: BMWs become relatively more expensive than they were before in relation to other cars, and consumers will buy the same number of BMWs.

This option is also incorrect because it describes a situation where the price of BMWs increases, and it does not consider the substitution effect that would lead to a change in the quantity demanded.

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