When the price of a product decreases, the purchasing power of our income increases and thus permits consumers to purchase more of the product. This statement describes
A. the income effect.
B. an inferior good.
C. the rationing function of prices.
D. the substitution effect.
Answer: A
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Indicate whether the statement is true or false
Good Boy Super Treats produces healthy treats for dogs. At its current advertising level, Good Boy Super Treats marginal cost of advertising is $1 million and their marginal benefit is $1 million. Which of the following is true?
A) If the firm increases the amount of advertising, its net profit will increase. B) The firm should increase the amount of advertising to increase its net profit. C) The firm is currently maximizing its net profit. D) If the firm decreases the amount of advertising, its net profit will increase.