Neville from Your Workbook Has a Friend Named Cedric

question 30

Multiple Choice

Neville from your workbook has a friend named Cedric. Cedric has the same demand function for claret as Neville, namely q = .02m - 2p, where m is income and p is price. Cedric's income is $6,000 and he initially had to pay a price of $40 per bottle of claret. The price of claret rose to $60. The substitution effect of the price change

• A) reduced his demand by 24.
• B) reduced his demand by 40.
• C) reduced his demand by 56.
• D) increased his demand by 40.
• E) reduced his demand by 34.

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Definitions:

Central Planning Model

A system of economy where all choices regarding the creation and use of goods and services are made by the government.

American Capitalism

A system marked by private property, competitive markets, economic incentives, and limited government intervention in the economy.

Product Differentiation

The technique of identifying a product or service as unique in the market to boost its desirability to a chosen target demographic.

Mass Production Techniques

Methods of producing large quantities of products quickly and efficiently using assembly lines and standardized parts.