How does the substitution effect work when the price of an item drops?
(A) The substitutes for the item also suffer a drop in prices.
(B) Consumers buy the item even if they do not particularly want it.
(C) The item becomes less and less popular as its price drops.
(D) Consumers buy the item as a substitute for other more costly items.
Ans: (D) Consumers buy the item as a substitute for other more costly items.
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Raising the federal funds rate shifts the aggregate demand curve ________, so that real GDP________ and the price level ________
A) rightward; increases; rises B) leftward; decreases; rises C) rightward; increases; falls D) leftward; increases; rises E) leftward; decreases; falls
What happens in a perfectly competitive industry when economic profit is greater than zero?
A) Existing firms may get larger. B) New firms may enter the industry. C) Firms may move along their LRAC curves to new outputs. D) There may be pressure on prices to fall. E) All of the above may occur.