Explain how income and substitution effects alter the saving behavior of households
What will be an ideal response?
When the interest rate rises, the opportunity cost of spending income rises and therefore, individuals will be more likely to save. This is the substitution effect. However, because the interest rate increase makes households better off, they want to purchase more normal goods and save less. This is the income effect.
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Graphically, a firm's profit per unit of output can be found by:
a. the triangle formed under the demand curve. b. the rectangle formed under the demand curve at a given price and quantity combination. c. the rectangle formed under the average-total-cost curve at a given ATC and quantity combination. d. the distance between the demand and average-total-cost curves at any level of output. e. the distance between the horizontal axis and the average-total-cost curves at any level of output.
Increasing the capital available to the workforce, holding other factors constant, tends to ________ total output while ________ average labor productivity.
A. decrease; increasing B. increase; not changing C. increase; decreasing D. increase; increasing