The Substitution Effect

question 19

Multiple Choice

The substitution effect

• A) is when individuals consume more of one good and less of another.
• B) is associated with changes in relative prices.
• C) will have no effect if goods are unrelated.
• D) all of these answer options are correct.

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Definitions:

Loan

A sum of money that is borrowed, often from a financial institution, which is expected to be paid back with interest.

Annual Interest Rate

The percentage increase in money that borrowers pay lenders over a year, typically applied to loans and savings.

Interest

The charge for borrowing money or the return for lending money, expressed as a percentage of the loan amount.

Interest Rate

The percentage charged on a loan or paid on savings over a specific period, reflecting the cost of borrowing or the reward for saving.