If the price of orchids falls, the substitution effect due to the ...

[meagbuch]

If the price of orchids falls, the substitution effect due to the price change will cause
 
  A) an increase in the quantity of orchids demanded.
  B) an increase in the demand for roses, a substitute for orchids.
  C) an increase in the quantity of orchids supplied.
  D) an increase in the demand for orchids.

Question 2

Explain the big tradeoff. What idea of fairness has been developed to deal with it?
 
  What will be an ideal response?

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Answer to Question 1

A

Answer to Question 2

The big tradeoff is the tradeoff between efficiency and fairness. Redistributing incomes changes the incentives facing producers and consumers. Taxing income decreases producer surplus and taxing purchases decreases consumer surplus. Producers produce less and consumers consume less, and total economic activity declines, such that the size of the economic pie decreases. The big tradeoff has led to the idea that the fairest distribution is that which makes the poorest person as well off as possible.

[meagbuch]

Correct answers!

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Great! Please up vote