Consider the Substitution and Income Effects of a 15% Increase

question 103

Multiple Choice

Consider the substitution and income effects of a 15% increase in the price of a good.Of the goods listed below,which is most likely to have the smallest income effect?

• A)groceries
• B)restaurant meals
• C)gasoline
• D)paperclips
• E)dishwashers

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Definitions:

Product Category

A classification of products or services grouped together based on common characteristics, purposes, or consumer perceptions, which helps in organizing offerings and marketing strategies.

Fixed Costs

Costs that remain constant regardless of the quantity of products or services a company produces, including charges like lease payments, wages, and insurance premiums.

Variable Costs

Expenses that fluctuate in direct proportion to production or sales levels, including materials and labor costs.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of consumers to price changes.