The Substitution Effect of a Price Change Is Described by Which

question 36

Multiple Choice

The substitution effect of a price change is described by which of the following statements?

• A) When the price of a good falls, consumers have more real income with the same nominal income and will now buy more of the good.
• B) When the price of a good falls, consumers will now substitute this lower priced good for relatively higher priced goods.
• C) The substitution effect is the relative change in the amount of a good consumed when the price of another good changes.
• D) The substitution effect shows how a change in income will affect the quantity of a good purchased.

Recognize the significance of cultural and psychological factors in perception and sensation.

Understand the physical and psychological aspects of information processing in humans.

Understand the AIDA model and its relevance in crafting persuasive messages.

Recognize the importance of audience analysis in preparing persuasive communication.

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Definitions:

Efficient

An economic condition where resources are allocated in the most optimal way, maximizing the production of goods and services without wasting any resources.

Production Possibilities Frontier

A graph that illustrates the maximum amounts of two goods that a society can produce with the available resources and technology, given that it is using its resources efficiently.

Representativeness Bias

A cognitive bias where individuals incorrectly assess the probability of an event based on similarities to existing prototypes in their mind, rather than on actual evidence.

Availability Bias

A cognitive bias where individuals overestimate the importance of information that is readily available to them.