Suppose the Price of Potatoes Falls and There Is a Decrease

question 20

Multiple Choice

Suppose the price of potatoes falls and there is a decrease in the purchases of potatoes, what can we infer?

• A)The income effect is negative and exceeds the substitution effect.
• B)The income effect is negative and reinforces the substitution effect.
• C)The income effect is positive and exceeds the substitution effect.
• D)The income effect is positive and reinforces the substitution effect.
• E)The income effect is negative and just about offsets the substitution effect.

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Definitions:

Sales

The exchange of goods or services for money, constituting the primary source of revenue for most businesses.

Accounts Receivable Turnover

A financial metric that measures the efficiency with which a company collects on its receivables or the credit it extends to customers by calculating the number of times receivables are turned over during a given period.

Acceleration

The rate at which an object's velocity changes over time, often measured in meters per second squared in the physical sciences or in speeding up processes within various fields.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity and operational efficiency of the business.