Sam Has $200 a Month to Spend on Two Normal

question 134

Multiple Choice

Sam has $200 a month to spend on two normal goods-tanning sessions and rounds of golf. Tanning sessions are $20 each, and a round of golf is $40. Sam currently consumes six tanning sessions and two rounds of golf each month. If the price of a round of golf drops to $20, the income effect predicts that Sam will:

• A)increase his consumption of both rounds of golf and tanning sessions.
• B)double his consumption of rounds of golf.
• C)consume more rounds of golf and fewer tanning sessions.
• D)consume fewer rounds of golf and more tanning sessions.

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Definitions:

Assets and Liabilities

Assets are resources owned by a company expected to provide future benefits, and liabilities are obligations a company owes to outside parties.

Fair Market Value

The price at which an asset would change hands between a willing buyer and a willing seller, not under compulsion and both having reasonable knowledge of the relevant facts.

Acquisition Differential

The excess of the cost of acquisition over the fair value of the net assets acquired in a business combination, often attributed to intangibles like goodwill.

Fair Value Enterprise Method

A valuation method that estimates the value of an entire enterprise as if it were traded in a fair and open market.