The substitution effect
A. is equal to the income effect for a normal good.
B. is always smaller than the income effect.
C. reduces the quantity demanded of a good when its price increases.
D. is always greater than the income effect.
Answer: C
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Pam is determined to lose 10 pounds and plans to adhere to a strict diet. But at the coffee break, she sees tray of glazed donuts and can't resist. She forgoes the plain bagel and devours a donut. Both the donut and bagel are priced at $0.50 . When her office mates tease her, she says matter-of-factly that
a. the MU/P of donuts is higher than that of the bagel, and that's that! b. the MU/P of bagels is higher than that of the donut, and that's that! c. the consumer surplus associated with bagels was higher than it was for donuts, making donuts more attractive d. when it comes to food, she's irrational e. the MU of losing 10 pounds is less than the MU of eating one donut.
The story about the mass slaughter of buffalo in the United States, which allowed the products to be exported during the 1870s, is an example of:
a. the first-mover principle. b. the principle of comparative advantage. c. the tragedy of the commons. d. export subsidies.
If fractional reserve banking exists, then:
A. the money multiplier is equal to 1. B. banks need only keep a portion of each deposit on hand. C. lending would be curtailed to nearly zero. D. money cannot be created in the economy through banks.
The SRAS upward sloping shows an increase in P and G & S.
a. true b. false