Maude Thinks Delphiniums and Hollyhocks Are Perfect Substitutes, One for One

question 28

Multiple Choice

Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one. If delphiniums currently cost $5 per unit and hollyhocks cost $6 per unit and if the price of delphiniums rises to $8 per unit,

• A) the income effect of the change in demand for delphiniums will be bigger than the substitution effect.
• B) there will be no change in the demand for hollyhocks.
• C) the entire change in demand for delphiniums will be due to the substitution effect.
• D) of the change will be due to the income effect.
• E) of the change will be due to the income effect

Evaluate the reasons firms enter, stay in, or exit from a market.

Differentiate between average revenue, marginal revenue, and their importance to profit-maximizing firms.

Understand conditions under which the long-run supply curve can be perfectly elastic or slope upward.

Identify circumstances that display the rationale behind seemingly irrational market behaviors.

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Definitions:

Equilibrium

A state in a market or economy where supply equals demand, and there is no incentive for change under current conditions.

Coconuts

Often used in economic models and examples, referring to a simplistic commodity to illustrate principles of trade, investment, or resource allocation.

Equilibrium

A condition or state in which economic forces such as supply and demand are balanced, resulting in a stable market.

Coconuts

A large tropical fruit with a hard shell, edible white flesh, and clear liquid, often used in food and drink preparations.