The substitution effect suggests that
A. when prices are higher, you buy less of what you originally wanted and use something else instead.
B. when prices are higher, you buy fewer because the marginal utility of a good is diminishing.
C. when prices are higher, you buy more.
D. when prices are higher, your buying power is less, so you buy less.
Answer: A
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A) left; rise B) left; fall C) right; rise D) right; fall
Determining whether a good is a merit good is:
A. best done using economic theory. B. an objective exercise. C. a subjective exercise. D. best left to economists.
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Indicate whether the statement is true or false