When the Price of a Good Changes,the Substitution Effect Occurs

question 97

Multiple Choice

When the price of a good changes,the substitution effect occurs because:

• A)the consumers' real income measured in terms of that good changes.
• B)the relative price of that good changes compared to other goods in the consumption bundle.
• C)the total utility of that good changes.
• D)the marginal utility of that good changes.
• E)consumers have an incentive to substitute irrational behavior for rational behavior.

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Definitions:

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums, providing a basis for operational planning.

Operating Profit

Earnings before interest and taxes (EBIT), representing the profit a company makes from its operations after subtracting operating expenses from revenue.

Sales Mix

The proportion of different products or services that make up the total sales of a company.

Unit Contribution Margin

The amount each unit sold contributes to covering fixed costs and generating profit, calculated by subtracting variable costs per unit from the selling price per unit.