The Substitution Effect

question 124

Multiple Choice

The substitution effect

• A) is always larger than the price effect.
• B) always decreases purchases of a good as the price of a good rises.
• C) increases purchases of the good as the price rises if the good is a normal good.
• D) is always smaller than the income effect.

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Sole Proprietorship

A business owned and operated by a single individual, where there is no legal distinction between the owner and the business entity.

Dissolving

The process by which a substance breaks down into its constituent parts or is incorporated into a solvent, becoming a solution.

Partnership

A partnership is a legal form of business operation between two or more individuals who share management and profits.