If a Consumer Views a Unit of Consumption in Period

question 14

Multiple Choice

If a consumer views a unit of consumption in period 1 as a perfect substitute (one for one) for a unit of consumption in period 2 and if the real interest rate is positive, the consumer will

• A)consume only in period 1.
• B)consume only in period 2.
• C)consume equal amounts in each period.
• D)consume more in period 1 than in period 2 if income elasticity exceeds 1, otherwise consume more in period 2 than in period 1.
• E)equalize expenditures but not consumption in the two periods.

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Definitions:

Midpoint Method

A technique used to calculate the elasticity of demand or supply, offering a more accurate measure by averaging the beginning and end prices and quantities.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in its price, indicating the sensitivity of demand to price changes.

Most Elastic

Refers to the responsiveness of demand or supply to changes in price or income, with "most elastic" indicating the greatest sensitivity.

Quantity Demanded

The sum total of a service or good that individuals are interested in buying and can afford at an established price.