The Substitution Effect of a Price Change

question 35

Multiple Choice

The substitution effect of a price change:

• A)will always offset the income effect.
• B)will always result in the consumer buying less of a good at a higher price.
• C)dominates the income effect in the inferior good case.
• D)will always be lower than the income effect of the price change.

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Definitions:

London Bank

Generally refers to banks based in London, a major international financial center, but without specifying any particular institution or its activities.

British Pound

The currency of the United Kingdom, which is one of the world's major currencies traded on foreign exchange markets.

U.S. Dollar

The official currency of the United States, widely used as a benchmark and reserve currency globally.

Trade Deficit

A situation where a country's imports exceed its exports, resulting in a negative balance of trade.