Question

The Income Effect argues that buyers will buy more of our product at a lower price because
a. substitutes are now more affordable
b. our products lower price means that the purchasing power of their incomes will allow them to buy more
c. our customers will have less taxes to pay
d. there will be less substitutes for our product
e. our product must be an inferior good

The Substitution Effect argues that buyers will by less of our product if its price increases because
a. The number and closeness of substitutes for our product will increase
b. There will be no good substitutes for our product if this occurs
c. demand will shift to substitutes from our product
d. demand will shift from substitutes to our product
e. substitutes will become superior goods

The Law of Diminishing Marginal Utility basically says that buyers will tend to get _____ marginal utility or satisfaction out of consuming one more unit of a product.
a. no
b. more marginal utility, but not as much
c. negative
d. much more
e. randomly fluctuating
Group of answer choices

The Law of Diminishing Marginal Utility was meant to support or explain
a. rent control
b. minimum wage legislation
c. the Law of Supply
d. the Law of Demand
e. the Theory of Voluntary Exchange

Answer 1

Answer 1. b. our products lower price means that the purchasing power of their incomes will allow them to buy more

reason- Income effect means when price decreases the purchasing power increases as the consumer is able to afford more goods.

Answer 2. c. demand will shift to substitutes from our product

Reason- Substitute effect means when price of a good increases consumer buys more substitute good as it ia relatively cheaper.

Answer 3. b. more marginal utility, but not as much

reason- Law of diminishing Marginal utility means as consumer consumes more of a good the marginal utility derived from consuming the good keeps on decreasing.

Answer 4. the Law of Demand

reason- The law of diminishing Marginal utility is the reason behind the law of demand.