Maude Thinks Delphiniums and Hollyhocks Are Perfect Substitutes, One for One.If

question 22

Multiple Choice

Maude thinks delphiniums and hollyhocks are perfect substitutes, one for one.If delphiniums currently cost $3 per unit and hollyhocks cost $4 per unit and if the price of delphiniums rises to $6 per unit,

• A)the income effect of the change in demand for delphiniums will be bigger than the substitution effect.
• B)there will be no change in the demand for hollyhocks.
• C)the entire change in demand for delphiniums will be due to the substitution effect.
• D)1/3 of the change in demand will be due to the income effect.
• E)2/3 of the change in demand will be due to the income effect.

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Definitions:

Marginal Cost

The cost related to the production of an additional unit of a product or service.

Price Taker

A seller (or buyer) that is unable to affect the price at which a product or resource sells by changing the amount it sells (or buys).

Monopolistic Competitor

A firm in a market where many competitors sell products that are differentiated from one another and hence are not perfect substitutes.

Pure Competitor

A market condition where many small firms sell identical products, and no single seller can influence the market price.