What is the relationship between the income effect and the substitution effect for a normal good and what is it for an inferior good?
What will be an ideal response?
For a normal good, the income effect reinforces the substitution effect. In other words, if the price falls so that a consumer's real income increases, both the substitution effect and the income effect lead the consumer to increase his or consumption of the good. For an inferior good, the income effect reduces the substitution effect. In this case, when the price of a good falls, the substitution effect leads to an increase in the consumption of the good and the income effect leads to a decrease in the consumption of the good.
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A) private good. B) natural monopoly. C) common resource. D) public good.
A monopolist maximizes revenue at
a. At MR= MC b. At MR>MC c. At P=MR d. At MR=0
Monetary policy that is focused on slowing down the economy is known as __________ monetary policy.
a. loose b. free c. expansionary d. contractionary
Janie must choose to either mow the lawn or wash clothes. If she mows the lawn, she will earn $30, and if she washes clothes, she will earn $45. She dislikes both tasks equally and they both take the same amount of time. Janie will therefore choose to ________ because it generates a ________ economic surplus.
A. wash clothes; bigger B. mow the lawn; bigger C. wash clothes; smaller D. mow the law; smaller