1.Which one of these goods is likely to have the largest substitution effect? Se

Question

1.Which one of these goods is likely to have the largest substitution effect?

Select one:

a. Diamonds

b. Nike Shoes

c. A toll road (a road drivers have to pay to use)

d. Healthcare

e. Higher Education

2. Justin pays for his groceries using a debit card. Justin is using money as:

Select one:

a. A medium of arbitration

b. A medium of exchange

c. A unit of account

d. A store of value

e. A unit of transaction

3. One Bahamian dollar equals one U.S. dollars. If there is a significant rise in the number of tourists to the Bahamas, what should the Bahamian government do to maintain the peg [maintain the exchange rate between the two currencies the same]

Select one:

a. Export more products to the U.S.

b. Spend more money on schools in the Bahamas

c. Use Bahamian dollars to buy U.S.dollars or government bonds

d. Raise interest rates in the economy (in Bahama)

e. Prohibit tourists from coming to the Bahamas

4.According to most economists, including classical economists, why are governments so important for economic growth?

Select one:

a. Because they tax the rich and give money to the poor

b. Because they provide public goods and help build infrastructure

c. Because they help stabilize the economy

d. Because they help create human capital

e. Because they can determine what should be produced better than the market can

Explanation / Answer

1. A. Diamonds

Explanation: Substitution effect refers to the economic phenomenon that when price increases or income level decreases, consumers replace expensive goods with cheaper alternatives. Here, diamond is a luxury good and it will have the largest substitution effect when the price goes up or income goes down.

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