When Does an Increase in Price Produce a Substitution Effect

question 26

Multiple Choice

When does an increase in price produce a substitution effect?

• A) only if purchasing power is impacted significantly
• B) only if there is a real-income effect
• C) only if marginal utility per dollar decreases relative to another good
• D) only if marginal utility per dollar increases relative to another good
• E) always

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Definitions:

Heighten

To increase the intensity, size, or degree of something.

Foster

To encourage the development or growth of ideas, feelings, or abilities.

Binet

Binet, Alfred (1857-1911), was a French psychologist who, together with Theodore Simon, developed the first practical IQ test, the Binet-Simon scale.

Intelligence Test

A standard assessment tool designed to measure cognitive abilities, such as reasoning, problem-solving, and understanding complex ideas.