The Principle of Substitution Plays a Central Role in Resource

question 48

Multiple Choice

The principle of substitution plays a central role in resource allocation because it demonstrates that

• A)firms will find it profitable to make abundant use of relatively scarce factors.
• B)methods of producing the same commodity will not differ from one country to another.
• C)firms can use all factors of production interchangeably with no impact on their costs.
• D)prices will be relatively low for those factors for which demand is high relative to supply.
• E)relative factor prices reflect relative scarcities of factors in the economy and so firms will find it profitable to make abundant use of relatively abundant factors.

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Definitions:

Dominance

In genetics, the phenomenon where one allele masks the expression of another allele at the same locus.

Recessiveness

A term in genetics where a trait is not expressed in the presence of a dominant allele, requiring two copies of a recessive allele for expression.

Economies of Scope

Economies of scope describe cost advantages that enterprises obtain due to a broader scope of operations, where producing a wider variety of goods or services leads to lower average costs.

Economies of Scale

Reductions in the average cost of a product in the long run, resulting from increased production and operational efficiencies.