When Two Variables Have a Strong Positive Correlation, the Correlation

question 341

Multiple Choice

When two variables have a strong positive correlation, the correlation coefficient will be close to:

• A) 0.
• B) -1.
• C) +10.
• D) +1.

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Definitions:

Substitution Effect

The effect observed when consumers replace more expensive items with cheaper alternatives due to changes in relative price levels, affecting demand for goods.

Utility Function

Describes how different combinations of goods or services (or different outcomes) provide levels of satisfaction or utility to an individual.

Substitution Effect

The change in consumption patterns due to changes in the relative prices of goods, leading consumers to substitute more expensive items with cheaper alternatives.

Giffen Good

A product that experiences an increase in demand as its price increases, contrary to the law of demand, typically because it is a staple whose cheaper substitutes are not as affordable.