The Intertemporal Substitution Effect of a Change in the Price

question 95

Multiple Choice

The intertemporal substitution effect of a change in the price level results from a

• A)change in the purchasing power of wealth.
• B)change in the price of foreign goods relative to domestic goods.
• C)change in the price of current goods relative to future goods.
• D)Both answers B and C are correct.

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Definitions:

Contribution Margin Ratio

The percentage of each sales dollar remaining after variable costs have been deducted.

Fixed Expenses

Costs that do not change with the level of output or sales in the short term, such as rent or salaries.

Break-even Point

The production level at which total revenues equal total expenses, resulting in no profit or loss.

Unit Contribution Margin

Unit contribution margin refers to the difference between the selling price per unit and the variable cost per unit, highlighting the profitability of individual items.