Suppose the Price of Potatoes Falls and We Observe a Decrease

question 111

Multiple Choice

Suppose the price of potatoes falls and we observe a decrease in an individual's purchases of potatoes. Which of the following can we infer?

• A) The income effect is negative and reinforces the substitution effect.
• B) The income effect is positive and exceeds the substitution effect.
• C) The income effect just offsets the substitution effect.
• D) The substitution effect outweighs the income effect.
• E) The income effect is negative and outweighs the substitution effect.

---

Definitions:

Pooled Standard Error

A method to estimate the standard error across two or more samples by combining the individual standard deviations into a single measure, often used in t-tests.

Confidence Interval

A variety of values obtained from sample data that probably encompasses the value of an unspecified population characteristic.

Margin of Error

An expression of the amount of random sampling error in a survey’s results.

Test Statistic

A calculated value used in statistical testing to determine if the null hypothesis can be rejected.