If the Price of a Good Increases, the Substitution Effect

question 125

Multiple Choice

If the price of a good increases, the substitution effect will

• A) always tend to make the quantity decrease, while the income effect could go either way.
• B) always tend to make the quantity increase, while the income effect could go either way.
• C) go either way, but the income effect will always make the quantity increase.
• D) go either way, but the income effect will always make the quantity decrease.

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Definitions:

Incentive Pay

A form of compensation designed to reward employees for achieving specific performance targets or objectives.

Base Pay

The initial rate of compensation that an employee receives in exchange for their services, not including benefits, bonuses, or any other potential compensation.

Permanent Adjustment

A change in a workplace or work procedure that is intended to remain in effect indefinitely.

Merit Pay System

A compensation approach where employee pay increases are based on their performance, often assessed through performance appraisals.