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The Substitution Effect Explains Why There Is an Inverse Relationship

question 159

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The substitution effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.


Definitions:

Marginal Revenue Curve

A graphical representation that shows the change in total revenue for every unit increase in the quantity of output sold.

Demand Curve

A graphical representation showing the relation between the price of a good and the quantity demanded by consumers.

Profit Maximizing

is a strategy where a firm decides on the quantity of production and price to maximize its profit.

Elasticity Of Demand

A gauge of the extent to which demand for an item is affected by fluctuations in its price.

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