The Real-Income Effect of a Price Change Is Most Significant

question 29

Multiple Choice

The real-income effect of a price change is most significant when

• A) the substitution effect is insignificant.
• B) the substitution effect is significant too.
• C) the good under consideration constitutes a major portion of the consumer's budget.
• D) the marginal utility per dollar spent on the last unit is high.

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Definitions:

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage rate.

Present Value

The value today of a sum of money or series of payments expected in the future, adjusted for a certain rate of return.

Interest Rate

The cost of borrowing money or the return on investment, expressed as a percentage of the amount borrowed or invested.

Usury Law

A law that establishes the highest interest rates that lenders can apply to borrowed money.