The Substitution Effect Is

question 43

Multiple Choice

The substitution effect is:

• A)the combination of leisure and wage rate that maximizes one's income
• B)the part of the total change in desired work hours that is due to the change in real income resulting from a change in the wage rate
• C)the part of the total change in desired work hours that is due to a change in the wage rate,with real income or utility constant
• D)always dominated by the income effect

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Definitions:

Marginal Benefit

The increased benefit or value received from the consumption or creation of one more unit of a good or service.

Marginal Cost

The investment required to manufacture an additional unit of a product or service.

Nonrivalry

The idea that one person’s benefit from a certain good does not reduce the benefit available to others; a characteristic of a public good.

Nonexcludability

The inability to keep nonpayers (free riders) from obtaining benefits from a certain good; a characteristic of a public good.