When the price of a normal good decreases,
a. both the income and substitution effects encourage the consumer to purchase more of the good.
b. both the income and substitution effects encourage the consumer to purchase less of the good.
c. the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
d. the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.
a
You might also like to view...
If most workers are risk adverse why do we still see many workers agreeing to contracts where their compensation is variable like commissions for magazine salesmen or car salesmen?
What will be an ideal response?
The major criticism of the view that expectations are formed adaptively is that
A) this view ignores that people use more information than just past data to form their expectations. B) it is easier to model adaptive expectations than it is to model rational expectations. C) adaptive expectations models have no predictive power. D) people are irrational and therefore never learn from past mistakes.
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by
A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.
If a monopoly can advertise and as a result the demand curve will become more inelastic, the monopoly
A) should always engage in the advertising. B) should engage in the advertising until the demand curve becomes more elastic. C) will earn higher gross profit if it advertises. D) None of the above.