The Substitution Effect of a Price Decrease

question 6

Multiple Choice

The substitution effect of a price decrease:

• A)allows the consumer to obtain a higher level of well-being.
• B)reflects an increase in real income.
• C)is a movement along the indifference curve to consume more of the lower priced good and less of the higher priced good.
• D)is a shift of the indifference curve indicating higher consumption of both the goods.

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Definitions:

Sure Payment

A guaranteed financial transaction where the payer is certain to provide the agreed-upon sum to the payee.

Lottery

A form of gambling that involves the drawing of numbers at random for a prize, often analyzed for its economic impact and decision-making under uncertainty.

Probability

A measure of the likelihood that an event will occur, ranging from 0 (impossibility) to 1 (certainty).

Expected Utility Function

A concept in economics that represents an individual's preference for certain outcomes over others, calculated as a weighted average of the utility of all possible outcomes, based on their probabilities.