What Happens to Consumer Surplus in the IPod Market If

question 40

Multiple Choice

What happens to consumer surplus in the iPod market if iPods are normal goods and buyers of iPods experience an increase in income?

• A)Consumer surplus decreases.
• B)Consumer surplus remains unchanged.
• C)Consumer surplus increases.
• D)Consumer surplus may increase, decrease, or remain unchanged.

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Definitions:

Stock Options

Financial derivatives that grant the holder the right, but not the obligation, to buy or sell a stock at a specified price within a certain time frame.

Principal-Agent Problem

(1) At a firm, a conflict of interest that occurs when agents (workers or managers) pursue their own objectives to the detriment of the principals’ (stockholders’) goals. (2) In public choice theory, a conflict of interest that arises when elected officials (who are the agents of the people) pursue policies that are in their own interests rather than policies that would be in the better interests of the public (the principals).

Profit Sharing Plans

A company program that gives employees a share in the profits of the company.

Principal-Agent Problem

A dilemma in which one party (the agent) is supposed to act in the best interest of another party (the principal) but may act in their own interest instead, leading to inefficiencies.