When the price of a good changes, the amount of that good that buyers wish to buy changes:
A. solely because of the substitution effect.
B. only if the substitution effect and the income effect do not cancel out each other.
C. because of both the substitution and the income effects.
D. solely because of the income effect.
Answer: C
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A business cycle is the:
a. period of time in which expansion and contraction of economic activity are equal. b. period of time in which there are three phases: peak, depression, and recovery. c. recurring growth and decline in real GDP. d. period of time in which a business is established and ceases operations.
When an economy experiences deflation, investment will:
A. decrease, because businesses will not take out loans that will increase in value over time. B. increase, because businesses will take out loans that will increase in value. C. decrease, because businesses will spend cash instead of borrowing it. D. increase, because businesses will spend cash instead of borrowing it.
When aggregate demand declines unexpectedly and wage contracts are fixed, then the average price level will:
a. increase and business firms will hire new workers. b. decline and firms will reduce wages. c. decline and business firms will lay off workers. d. increase and business firms will lay off workers. e. increase and business firms will increase wages.
The graph below shows demand and marginal cost for a perfectly competitive firm. If the firm is producing 300 units of output, decreasing output by one unit would ________ the firm's profit by ________.
A. increase, $5 B. decrease, $5 C. decrease, $2 D. increase, $2 E. increase, $3