The Substitution Effect of a Change in the Price of Bananas

question 195

Multiple Choice

The substitution effect of a change in the price of bananas refers to the way in which a change in the

• A)price of a substitute affects the demand for bananas
• B)price of bananas affects the ability to buy them
• C)relative price of bananas changes demand for them
• D)relative price of bananas changes the quantity demanded of bananas
• E)price of a substitute affects the quantity demanded of bananas

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Definitions:

Average Total Cost

The total cost of production (fixed and variable costs combined) divided by the number of units produced.

Socially Optimal

A condition or point where the social welfare, including both consumer and producer welfare, is maximized, often considered in the analysis of market efficiency and interventions.

Pure Competition

A market structure characterized by a large number of small firms, homogeneous products, and easy entry and exit, leading to price taking behavior.

Long Run

A period in which all inputs can be adjusted by firms, allowing new firms to enter or exit the industry.