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:

Pareto Optimal Allocation

An allocation of resources from which it is impossible to reallocate so as to make any one individual better off without making at least one individual worse off.

Utility Function

A mathematical model in economics that represents an individual's preference system, used to rank choices in order of preference.

Apples

In economic terms, apples can serve as an example of a consumer good, whose supply and demand can be analyzed to understand market dynamics.

Bromides

Compounds containing the bromide ion or compounds that act as a sedative; colloquially used to refer to common sayings or platitudes that lack originality.