In Order to Isolate the Substitution Effect of a Price

question 5

Multiple Choice

In order to isolate the substitution effect of a price increase,a consumer

• A) must be given a lower price on the other good so that he can achieve his original indifference curve.
• B) must be given enough of the other good so that his consumption of that good is not influenced.
• C) must be given enough additional income to allow him to achieve his original indifference curve.
• D) must be given enough additional income to allow him to purchase the original quantity of the good.

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Definitions:

Export Promotion

A government strategy aimed at encouraging local producers to sell their goods and services abroad.

Import Substitution

An economic policy that aims to replace foreign imports with domestic production, often through the use of tariffs, quotas, and other trade barriers.

Economic Growth

An increase in the production of goods and services in an economy over a period, typically measured by the rise in real GDP.

Foreign Financing

Funding sourced from foreign countries, including loans, investments, and other financial resources, to support domestic expenditures.