When the Price of an Inferior Good Decreases

question 342

Multiple Choice

When the price of an inferior good decreases,

• A)both the income and substitution effects encourage the consumer to purchase more of the good.
• B)both the income and substitution effects encourage the consumer to purchase less of the good.
• C)the income effect encourages the consumer to purchase more of the good, and the substitution effect encourages the consumer to purchase less of the good.
• D)the income effect encourages the consumer to purchase less of the good, and the substitution effect encourages the consumer to purchase more of the good.

Discuss wage determination theory in the context of developing countries.

Interpret the difference between purchase and rental prices of capital in terms of marginal product.

Understand the concept of marginal productivity and its importance in determining firm labor demand.

Analyze the influence of changes in market conditions (such as wages and product prices) on firm's profit-maximizing employment level.

---

Definitions:

Operating Income

The profit realized from a business's core operations, excluding deductions of interest and taxes.

Variable Cost

A cost that changes in proportion to the level of activity or volume of output in a business.

Capacity

In finance, the ability of an individual or organization to repay a loan or meet financial obligations.

Fixed Costs

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.