Scenario: Meryl and Steve Are Two Classmates Who Form a Study

question 156

Multiple Choice

Scenario: Meryl and Steve are two classmates who form a study group. The graph below shows the production possibilities curves for each of them.

-Refer to the scenario above.If Meryl and Steve decide to join forces to do school work and trade,then ________.

• A) Meryl should specialize in doing Econ homework assignments, and Steve should specialize in writing lab reports
• B) Steve should specialize in doing Econ homework assignments, and Meryl should specialize in writing lab reports
• C) Meryl should do half the Econ homework assignments and write half the lab reports, and Steve should do the same
• D) Meryl should do ¾ of the Econ homework assignments and ¼ of the lab reports, and Steve should complete the rest

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Definitions:

Income Effect

A change in the quantity demanded of a good or service as a result of a change in real income (purchasing power).

Inferior Good

A type of good for which demand declines as the income of individuals or the economy increases, opposite to normal goods.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, leading consumers to substitute a cheaper good for a more expensive one.

Income Effect

The alteration in a person's or an economy's earnings and the effect this alteration has on the demand for a product or service.