An Economic Theory Claims That a Rise in Gasoline Prices

question 115

Multiple Choice

An economic theory claims that a rise in gasoline prices will cause gasoline purchases to fall, Ceteris paribus. The phrase "Ceteris paribus" means that:

• A) other relevant factors like consumer incomes must be held constant.
• B) the gasoline prices must first be adjusted for inflation.
• C) the theory is widely accepted but cannot be accurately tested.
• D) consumers' need for gasoline remains the same regardless of the price.

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Definitions:

Incentive

Something that motivates or encourages an individual or entity to act in a certain way.

Costs And Benefits

This is an analysis approach that compares the potential outcomes and implications, in terms of costs and benefits, of an action or decision.

Marginal Social Benefit

The extra advantage to society that comes from using an additional unit of a product or service.

Marginal Social Cost

The total cost to society of producing one additional unit of a good, including both private costs and externalities.