Assume That There Was a 5 Percent Increase in the Price

question 351

Multiple Choice

Assume that there was a 5 percent increase in the price of all goods in 2015; if the base year is 2014, then the price index in 2015 will be

• A) 95.
• B) 105.
• C) 110.
• D) 1100.

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Definitions:

Substitution Effect

The change in consumption resulting from a change in the relative prices of goods, prompting consumers to replace more expensive items with less costly alternatives.

Income Effect

The shift in income for an individual or the economy, and its influence on the demand for a specific good or service.

Wages Increase

The act or occurrence of raising the amount of money that workers are paid for their labor.

Consumer's Optimal

The point at which an individual achieves the best possible satisfaction or utility from the consumption of goods and services, given their budget constraints.