The substitution effect isolates the change in the consumption of a good caused by:
A. the change in consumer preferences.
B. the change in the market rate of substitution.
C. the lower "real" income.
D. None of the statements is correct.
Answer: B
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In Figure 4-6 above, with IS0 shifting to IS1 against the upward-sloping LM curve, crowding-out is the result that
A) income stays at YO3. B) income rises to Y1 instead of to Y2. C) income rises to Y1 instead of staying at YO3. D) income rises to Y2 instead of to Y1.
The above figure shows Bob's utility function. He currently has $100 of wealth, but there is a 50% chance that it could all be stolen. Living with this risk gives Bob the same expected utility as if there was no chance of theft and his wealth was
A) $0. B) $20. C) $30. D) $50.
For a given market demand curve, if the market clearing price decreases, then the amount of consumer surplus will
A) decrease. B) increase. C) become negative. D) none of the above due to insufficient information.
What is the assumption underlying public-choice theory?
A) Elected officials believe in cooperating with one another and they seek to avoid competition among themselves. B) The costs and benefits of being efficient are the same whether one is in the private sector or in the public sector. C) Individuals act within the political process to improve their own individual well-being. D) Resources in the public sector are not scarce.