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:

Financial Accounting

The field of accounting that focuses on reporting a company's financial information to external users, such as investors and creditors.

Probability

The measure of the likelihood that a specific event will occur.

Mutually Exclusive

A statistical term describing events that cannot occur at the same time, implying no overlap in their outcomes.

Event A

A specified occurrence or result in a probabilistic framework that is subject to study or analysis.