The Principle of Substitution Plays a Central Role in Resource

question 40

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) prices will be relatively low for those factors for which demand is high relative to supply.
• C) firms can use all factors of production interchangeably with no impact on their costs.
• D) methods of producing the same commodity will not differ from one country to another.
• 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.

---

Definitions:

Hysteria

An outdated medical term once used to describe a variety of psychological disorders characterized by extreme emotional reactions and somatic symptoms; now understood in terms of specific disorders.

Jean Charcot

A French neurologist known for his work on hypnosis and hysteria, significantly influencing the field of neurology.

Degeneration

The process of deterioration or decline in physical, mental, or moral qualities.

Conditioned Salivation

A reflex response where salivation is triggered by a stimulus that previously was associated with the presentation of food, famously studied by Pavlov.