Because we cannot observe or measure utility
A) the predictions of marginal utility theory cannot be verified.
B) marginal utility theory is incomplete and so its predictions might not be valid.
C) marginal utility theory must be derived from assumptions about demand curves because demand curves can be measured.
D) None of the above answers are correct.
D
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For an inferior good, the income effect
a. is zero b. at least partially offsets the substitution effect c. operates to increase the quantity demanded d. helps explain why the demand curve slopes upward e. does not exist
Starting from long-run equilibrium, a large tax increase will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. recessionary; lower; potential B. expansionary; lower; potential C. expansionary; higher; potential D. recessionary; lower; lower