When the Price Level Falls by 20 Percent, Products That

question 120

Multiple Choice

When the price level falls by 20 percent, products that used to cost $600 now cost

• A) $120.
• B) $580.
• C) $300.
• D) $500.
• E) $480.

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Definitions:

Necessities

Necessities are basic needs or essential items required for living, such as food, clothing, and shelter.

Ability-To-Pay Principle

A taxation principle that suggests taxes should be levied according to an individual or entity's ability to afford them, often implying higher taxes for those with higher income.

Pigouvian Subsidies

Financial incentives given by the government to encourage activities that have positive external effects on society.

Government Transfers

Payments by the government to individuals for which no good or service is provided in return.