Asked by Queen Owusu on May 25, 2024
Verified
Statement I: The substitution effect states that if the price of a resource rises,other resources will be substituted for it.
Statement II: The concept of margin is central to economic analysis.
A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.
Substitution Effect
The change in consumption patterns due to a change in the relative prices of goods, leading consumers to replace more expensive items with cheaper alternatives.
Margin
Margin refers to the difference between the selling price of a good or service and its cost of production, also used to describe profit margin or markup.
- Comprehend the significance of marginal output and marginal physical product within economic studies.
- Grasp the significance and implications of substitution and output effects in resource allocation.
Verified Answer
HP
Hetal PanchalMay 27, 2024
Final Answer :
C
Explanation :
Statement I is correct as it depicts the substitution effect, which refers to the tendency of consumers and producers to switch to relatively cheaper goods or resources in response to a price rise in a particular good or resource.
Statement II is also true as the concept of margin is central to economic analysis since it helps to examine changes in economic variables concerning a unit increase or decrease in another variable, which is important for economists to understand the complexities of decision-making.
Statement II is also true as the concept of margin is central to economic analysis since it helps to examine changes in economic variables concerning a unit increase or decrease in another variable, which is important for economists to understand the complexities of decision-making.
Learning Objectives
- Comprehend the significance of marginal output and marginal physical product within economic studies.
- Grasp the significance and implications of substitution and output effects in resource allocation.