As a group, U.S. consumers have no income response for their consumption of ice cream so that the income elasticity of demand for ice cream equals zero
Does this mean that the change in ice cream consumption that results from a price increase is entirely composed of the substitution effect? A) Yes, the income effect associated with a price change is zero
B) No, any price change moves the point of consumption to a new indifference curve, so there must be a non-zero income effect
C) No, the income and substitution effects in this case move in opposite directions and completely offset one another, so it only appears that the income effect is zero
D) We need more information about the goods to answer this question
A
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A competitive price-taker market in long-run equilibrium is described as efficient because firms
a. produce at the low point on their average cost curve. b. produce where marginal cost yields a profit. c. earn no more than the cost of capital. d. are not profitable.
In the short run, we assume that the number of firms in a perfectly competitive market:
A. varies if perfect information is present. B. is fixed. C. is equal to the number of firms in the long-run. D. varies more than the long-run equilibrium.