A surplus budget can be used to combat an inflationary gap

If the price of a product falls, that product becomes cheaper and people will want to purchase more of it in place of other goods. This statement best describes:

A) the income effect. B) the substitution effect. C) a complementary good. D) an inferior good.

Suppose the production of mp3 players can be represented by the following production function: q = L0.4K0.4. The firm currently produces q1 units. If all inputs doubled, the new level of output will equal

A) 20.4 q1. B) 20.8 q1. C) 0.8 q1. D) 1.6 q1.