In Which of the Following Scenarios Would the Income Effect

question 246

Multiple Choice

In which of the following scenarios would the income effect be most likely to be greater than the substitution effect?

• A)An increase in the minimum wage
• B)A tax on fast foods
• C)An increase in salaries for surgeons
• D)An increase in wages for day laborers

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Definitions:

Classical Model

An economic theory that emphasizes the role of free markets in regulating economic activity and suggests that markets naturally move towards full employment.

Prices and Wages

The amount of money required to purchase goods and services, and the payments made to workers for their labor, respectively.

Long-Run Aggregate Supply Curve

This curve represents the total output of goods and services that an economy can produce when it is most efficiently using all of its resources, unaffected by short-term fluctuations in demand.

Vertical

A business strategy or integration whereby a company controls more than one stage of the supply chain, from production to retail.