According to the substitution effect, when the price of a good increases, consumers ______.
a. switch to another similar good
b. buy less of it due to their budget constraints
c. gain less utility from that good
d. experience consumer equilibrium
a. switch to another similar good
You might also like to view...
Suppose that M = 300, P = 150, and Y = 6. Then the velocity of circulation equals
A) 0.02. B) 0.50. C) 2.00. D) 3.00.
The EU currently is a preferential trade agreement with no governmental institutions
Indicate whether the statement is true or false
Discuss why the empirical support for PPP and the law of one price is weak in recent data
What will be an ideal response?
Suppose that with international trade now a possibility, two trading nations restructure their production from both having produced clothes and food to one producing clothes and the other producing food. What gains do they experience? What problems may they experience? a. Gains are higher labor productivity and greater total output. Problems may be economic inefficiency
b. Gains are economic efficiency. Problems may be trade wars. c. Gains are people in both nations having higher incomes. Problems may be that the nations cannot find an acceptable trading price between food and clothes. d. Gains are higher labor productivity and greater total output. Problems may arise from dependence on the other for vital goods. e. Gains are economic efficiency. There are no problems as long as they engage in free trade.