Consumption Smoothing Refers to

question 23

Multiple Choice

Consumption smoothing refers to

• A) the tendency of all consumers to choose the same amount of current consumption.
• B) the tendency of consumers to seek a consumption path over time that is smoother than income.
• C) the tendency of consumers to seek an income path over time that is smoother than consumption.
• D) consumer's concerns about going heavily into debt.
• E) balance savings with consumption over time.

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Definitions:

Income Effect

Change in consumption of a good resulting from an increase in purchasing power, with relative prices held constant.

Substitution Effect

Change in consumption of a good associated with a change in its price, with the level of utility held constant.

Perfectly Competitive

A market structure characterized by a large number of small sellers and buyers, homogeneous products, and freedom of entry and exit.

Profit Maximizing

A process or strategy used by businesses to determine the best output and pricing levels in order to achieve the highest profit.