The Price of the Average Domestic Good or Service Relative

question 4

Multiple Choice

The price of the average domestic good or service relative to the price of the average foreign good or service, when prices are expressed in terms of a common currency is called the ________ exchange rate.

• A)flexible
• B)fixed
• C)real
• D)nominal

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Definitions:

Utility Maximization

The economic principle that individuals seek to obtain the greatest satisfaction or utility from their choices given their resources.

Marginal Utility

The additional satisfaction or usefulness gained from consuming one more unit of a good or service.

Income Effect

is the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to replace more expensive items with less expensive ones.