Suppose the price of a good increases, and you realize that the price of an alte
ID: 2441517 • Letter: S
Question
Suppose the price of a good increases, and you realize that the price of an alternative good is now relatively cheaper. In terms of this alternative good, this is an instance of...
A. The income effect.
B. The theory of relativity.
C. The substitution effect.
D. Both A and C.
When economists say that people make decision on the margin, they mean...
People often work out solutions within the margins of their paper.
An optimal decision is reached as long as the benefit of the last action is still large.
An optimal decision can be reached by comparing the costs and benefits of the last action taken.
An optimal decision is reached as long as the costs of the last decision are small.
A. The income effect.
B. The theory of relativity.
C. The substitution effect.
D. Both A and C.
When economists say that people make decision on the margin, they mean...
A.People often work out solutions within the margins of their paper.
B.An optimal decision is reached as long as the benefit of the last action is still large.
C.An optimal decision can be reached by comparing the costs and benefits of the last action taken.
D.An optimal decision is reached as long as the costs of the last decision are small.
Explanation / Answer
1.
C
It is the substitution effect that with rise in prices, the expensive goods are replaced by cheaper alternatives.
2.
C
It is about the marginal benefits and marginal cost of the last action or unit consumed and it helps to take the optimal decision.
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