Suppose at the Consumer's Current Consumption Bundle the Marginal Rate

question 97

Multiple Choice

Suppose at the consumer's current consumption bundle the marginal rate of substitution of cheese for wine is 1/2 bottle of wine per pound of cheese. The price of one pound of cheese is $6, and the price of a bottle of wine is $10. The consumer should increase his consumption of

• A)cheese, decrease his consumption of wine, and move to a lower indifference curve.
• B)cheese, decrease his consumption of wine, and move to a higher indifference curve.
• C)wine, decrease consumption of cheese, and move to a higher indifference curve.
• D)cheese, decrease consumption of wine, and remain on the same indifference curve.

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Definitions:

Sales-Type Lease

A financing arrangement in leasing, where the lessor recognizes immediate sales revenue and profit on the leased asset.

Direct Financing Lease

A leasing arrangement where the lessor purchases an asset and leases it out, recognizing interest income over the lease term.

Implicit Rate

The interest rate implied in a lease arrangement, calculated based on the present value of lease payments and the asset's fair value.

Incremental Borrowing Rate

The interest rate a borrower would have to pay to take on additional debt, used as a benchmark in lease accounting to measure lease liabilities in the absence of a specified rate in the lease.