The Real-Income Effect of a Price Change Is Most Significant

question 29

Multiple Choice

The real-income effect of a price change is most significant when

• A) the substitution effect is insignificant.
• B) the substitution effect is significant too.
• C) the good under consideration constitutes a major portion of the consumer's budget.
• D) the marginal utility per dollar spent on the last unit is high.

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Definitions:

Liquidity Risk

The risk of being unable to quickly convert assets into cash without significant loss in value, affecting a company's or individual's ability to meet short-term obligations.

Hedge Fund Returns

The earnings generated from investments in a hedge fund, which is a pooled investment fund that employs different strategies to earn active returns for its investors.

Pairs Trading

A form of statistical arbitrage in which stocks are paired up based on underlying similarities and long/short positions are established to exploit any relative mispricing between each pair.

Statistical Arbitrage

A quantitative strategy that seeks to take advantage of price inefficiencies between related financial instruments by employing complex mathematical models.