The 'substitution effect' of a price change always leads consumers to buy: MCQ with Answer and Explanation

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The 'substitution effect' of a price change always leads consumers to buy:

A. only inferior goods

B. less of the good whose relative price has fallen

C. the same amount

D. more of the good whose relative price has fallen

Answer: Option D

Solution (By JKSSB Mock Tests)

The substitution effect always causes consumers to buy more of the relatively cheaper good.

This question belongs to: Economy GK Economy Set 1

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Question #1

In the context of public finance, the concept of 'Ricardian Equivalence' suggests that:

A. Tax-financed and debt-financed government spending have the same effect on the economy

B. Government borrowing is always expansionary

C. Public debt has no intergenerational implications

D. Deficit financing always increases private consumption

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Correct Answer: Option A

Explanation:
Ricardian Equivalence, proposed by David Ricardo and revived by Robert Barro, argues that rational agents anticipate future taxes to repay debt, so government borrowing does not stimulate demand.

This question belongs to: Economy GK Economy Set 1

Question #2

The 'Pigou effect' suggests that falling prices:

A. increase real wealth and consumption

B. increase unemployment

C. reduce money supply

D. reduce real wealth

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Correct Answer: Option A

Explanation:
The Pigou effect states that lower prices raise real wealth and stimulate consumption.

This question belongs to: Economy GK Economy Set 1

Question #3

The 'Environment Protection Act' was enacted in which year?

A. 1997

B. 1980

C. 1991

D. 1986

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Correct Answer: Option D

Explanation:
The Environment Protection Act was enacted in 1986.

This question belongs to: Economy GK Economy Set 1

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