Consider the indifference curve map and budget constraint for two goods, X and Y. Suppose the good on the horizontal axis, X, is normal. When the price of X increases, the substitution effect
a. and income effect both cause an increase in the consumption of X.
b. causes a decrease in the consumption of X, and the income effect causes an increase in the consumption of X. However, the substitution effect is greater than the income effect.
c. causes an increase in the consumption of X, and the income effect causes a decrease in the consumption of X. However, the substitution effect is greater than the income effect.
d. and income effect both cause a decrease in the consumption of X.
d
You might also like to view...
When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline B. increase; raise; decline C. decline; lower; expand D. decline; raise; decline
The optimal level of output may be defined as that level of output where
a. average benefit exceeds average cost by the greatest amount. b. total benefit equals total cost. c. marginal benefit exceeds marginal cost by the greatest amount. d. the marginal benefit of the last unit purchased equals its marginal cost. e. it is impossible to define optimal in any meaningful way.
Which of the following would be considered a variable input in the short run? a. The size of a firm's plant
b. The acreage of an apple farmer's orchard. c. The production capacity of a machine. d. None of the above.
The largest item amount among those listed here is
A. national income. B. net interest. C. net domestic product. D. corporate profits.