The Income Effect of a Decrease in the Price of Potatoes

question 16

Multiple Choice

The income effect of a decrease in the price of potatoes, an inferior good, is a(n) _____

• A) increase in the quantity demanded of onions.
• B) decrease in the quantity demanded of potatoes.
• C) increase in the demand for potatoes.
• D) increase in the quantity demanded of potatoes.
• E) decrease in the demand for onions.

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Definitions:

Economies Of Scale

The cost advantages that enterprises obtain due to their scale of operation, typically resulting in cost per unit of output decreasing with increasing scale.

Diminishing Returns

A principle stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.

Production Function

The relationship between the quantity of inputs a firm uses and the quantity of output it produces.

Inputs

The resources, such as labor, materials, and capital, that are used in the production process to produce goods or services.