Why does a price increase of a product result in a decrease in the quantity demanded of that product, according to utility analysis?
What will be an ideal response?
There are two effects associated with a price increase. The first is the substitution effect, which is the tendency of consumers to substitute cheaper goods for the more expensive good. The second effect is the real income effect, which is the lower overall purchasing power of the consumer as a result of the price increase. As a result of the two effects, a price increase results in a smaller quantity demanded.
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Recall the Application. The change in demand for cigarettes resulting from the decrease in taxes would normally create, ceteris paribus
A) a decrease in their quantity supplied. B) a decrease in their supply. C) an increase in their supply. D) an increase in their quantity supplied.
Which of the following industrial countries experienced a relatively slower growth of real GDP in the latter half of the 1990s?
a. Canada b. United States c. Italy d. France e. Japan
A monopolist will maximize profits by:
A. setting his price as high as possible, while a perfectly competitive firm will take price from the market. B. setting his price at the level that will maximize per-unit profit, while a perfectly competitive firm will minimize per-unit loss. C. producing the output where marginal revenue equals marginal cost, just as a perfectly competitive firm will. D. producing the output where price equals marginal cost, while a perfectly competitive firm will produce where marginal revenue equals marginal cost.
If unemployment and inflation move inversely, then we can infer that business fluctuations are
A. from the demand side. B. from the supply side. C. from both the demand and supply side. D. purely random events.