If the commodity is inferior then the Income Effect (I.E) and the Substitution Effect (S.E):
Both move together and reinforce each other
One moves and the other remains constant
Move in the opposite direction and neutralize each other
Both remain constant
Correct Answer :
C. Move in the opposite direction and neutralize each other
If a good is inferior, substitution effect and income effect move in opposite directions. The combined effect is indeterminate. When price rises, the substitution effect leads to a drop in quantity demanded, but the income effect is opposite. When price falls, the substitution effect leads to a drop in quantity demanded, but the income effect is opposite.}
Related Questions
In perfect competition, the slope of the total revenue curve of a firm is equal to the:
Market price
AVC
TFC
AFC
Selling costs are incurred under monopolistic competition to:
Attract more customers
Prevent its customers from going to others
Establish superiority of its product on the others
All of the above
Least cost combination of two factor inputs is achieved at a point where:
Budget line cuts the isoquant
Budget line is below the isoquant
Budget line is tangent with isoquant
None of the above
The short-run supply curve of the perfectly competitive firm is given by:
The rising portion of its MR over and above the break-even (shut-down) point
The rising portion of its MC over and above the break-even (shut-down) point
The rising portion of its MC over and above the AC curve
The rising portion of its MC curve
Entry of new firms into a competitive market will shift the supply curve of the:
Firm to the left
Industry to the right
Firm to the right
Industry to the left
The main contribution of David Ricardo is in the field of:
Wages of labor
Factor pricing
Theory of rent
Determination of the rate of interest
The marginal revenue of a perfectly competitive firm is:
Equal to the prices of its products
Positively related to output
Negatively related to output
Always higher than marginal cost
The economic problem of determining the combination of inputs yielding lowest cost for producing a given output:
Is only a choice among the technologically efficient combination
Depends on the relative price of inputs
Depends on the price of the product
Depends on the profits made
The modern cost curves are based upon the idea of:
Fixed capacity
Specific capacity
Excess capacity
Reserve capacity
The relationship between price effect, income effect and substitution effect is:
P.E = S.E + I.E
S.E = P.E +I.E
I.E = P.E +S.E
S.E = P.E +2I.E
Airlines that try to lower fares in order to increase revenues believe that demand for airline services is:
Price elastic
Price inelastic
Income elastic
Income inelastic
The sufficient condition of firms equilibrium requires:
none of the above
The slope of isocost line (budget line) shows:
Capital labor ratio
Labor wage ratio
Factor price ratio
Factor labor ratio
7.In an economy based on the price system the decision on what shall be produced is made by:
Government
Consumer
Producer
Stock holder
In monopolistic competition, because of difference in choices, the firm charges:
Different prices
Similar prices
High prices
Low prices
The Hicksian indirect utility function in the form of equation is:
x =f(P)
x =a-bp
In monopoly:
The producer will often produce a volume that is less than the amount which would maximize the social welfare.
The producer will often produce a volume that is more than the amount which would maximize the social welfare.
The consumers will often consume a volume that is more than the amount which would maximize the social welfare.
None of the above
Who is the author of Problems of Capital Formation in Underdeveloped Countries?
R.Nurkse
N.Kaldor
S.kuznets
Alfred Marshal
Demand of a commodity is elastic when:
Change in its price causes a proportionately greater change in its quantity demanded
Change in its price does not change its quantity demanded
Change in consumers income causes change in demand
None of the above
The factors of production in perfect competition are:
Stagnant
Mobile
Immobile
Rare
Which industries spend a relatively large share of their revenue on research and development in order to keep up with their competitors?
Grocery stores
High-Tech industries
Automobiles
Construction
Under perfect competition, the average revenue, marginal revenue and price are shown:
By a same single curve
By three different curves
By downward sloping curve
None of the above
When at a given price, the quantity supplied of a commodity is more than the quantity demanded, there will be:
An upward pressure on price
A downward pressure on price
Price will remain unaffected
All of the above
If the prices of goods rise then:
The real income of consumer falls
The real income of consumer rises
The real income of a consumer remains constant
The real income of consumer becomes zero
Duopoly is a market where there are:
Two sellers
A few sellers
Five sellers
Many sellers
When the income of consumer increases then budget line will:
Get steeper
Shift parallel to right
To get flatter
To shift upward
The main contribution of Alfred Marshal is in the field of:
Research in mathematical economics
Economics of labor
Theory of production
Theory of demand
The long-run average cost is based on the fact that:
None of the factors are variable in the long-run
All factors are perfectly divisible in the long-run
None of the factors is divisible
Management factor is indivisible while all other factors are divisible and can be varied in long-run
The elliptical isoquant represents the:
Economic combinations of labor and capital
Uneconomic combinations of labor and capital
Both a and b
None of the above
The products, under monopolistic competition are differentiated, yet they are:
Complements
Close substitutes
Both a and b
None of the above