Use a Diagram to Prove That in Case There Are

question 16

Essay

Use a diagram to prove that in case there are two goods, the substitution effect of an increase in the price of good x reduces the demand for good x.

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Definitions:

Total Risk

The complete scope of uncertainty or variability in returns on an investment, including both systematic and unsystematic risk factors.

Security Market Line

A representation in finance that shows the relationship between risk (as measured by beta) and expected return of investments, used in the capital asset pricing model.

Capital Market Line

A line used in the capital asset pricing model to depict the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio.

Characteristic Line

In finance, a line that describes the relationship between the return on an investment and the return on the market as a whole, used in the Capital Asset Pricing Model.