Suppose the Price of a Good Rises

question 86

Multiple Choice

Suppose the price of a good rises. The income effect

• A) is shown by increasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change.
• B) shows the change in consumption that results from the change in relative price while keeping income constant.
• C) is shown by decreasing income at the new relative price in order to move from the old indifference curve to the new indifference curve after the price change.
• D) shows the change in consumption that results from the change in relative price while staying on the same indifference curve.

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Definitions:

Gross Domestic Product

The total value of all goods and services produced over a specific time period within a country's borders.

Allocative Efficiency

an optimal distribution of resources in an economy, ensuring that goods and services are distributed according to consumer preferences.

Per-Capita Output

The average production of goods or services per person within a geographical area or country.

Developing Countries

Nations with a lower living standard, underdeveloped industrial base, and low Human Development Index (HDI) relative to other countries.