The Substitution Effect Indicates That a Profit-Seeking Firm Will Use

question 276

Multiple Choice

The substitution effect indicates that a profit-seeking firm will use

• A)more of an input whose price has fallen and less of other inputs in producing a given output.
• B)more of all inputs if production costs fall.
• C)more of those inputs whose marginal productivity is the greatest.
• D)less of an input whose price has fallen and more of other inputs in producing a given output.

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Definitions:

Normative Economics

An area of economics that makes assessments of economic fairness or desired economic outcomes and aims of public policy.

Consequences

The outcomes or effects resulting from a particular action or set of conditions.

Negative Relationship

A relationship between two variables, X and Y, in which a decrease in X is associated with an increase in Y and an increase in X is associated with a decrease in Y.

Positive Relationship

A situation where two variables move in the same direction, meaning as one variable increases, the other variable also increases.