Cupcakes and Granola Bars Are Substitutes in Consumption

question 171

Multiple Choice

Cupcakes and granola bars are substitutes in consumption. The price of a granola bar increases so the demand for

• A) granola bars will decrease, that is, the demand curve will shift leftward.
• B) granola bars will increase, that is, the demand curve will shift rightward.
• C) cupcakes will decrease, that is, the demand curve will shift leftward.
• D) cupcakes will increase, that is, the demand curve will shift rightward.

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Definitions:

Corporate Dividend Payout

The portion of a company's earnings that is distributed to shareholders in the form of dividends.

Firm's Earnings

The net profit a company achieves in a given period, calculated as revenues minus costs and expenses before taxation.

Information Content Effect

A market phenomenon where stock prices adjust in response to the news contained in a company announcement, suggesting the news has value for investors’ decisions.

Dividend Payout

The segment of a company's income that is given to shareholders in dividends.