Sam Has $200 a Month to Spend on Two Normal

question 72

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 and substitution effects will cause Sam's consumption of tanning sessions to:

• A)increase.
• B)decrease.
• C)change, but the direction is dependent upon which effect is stronger.
• D)This cannot be answered without more information.

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Definitions:

Indirect Labor

Labor costs of workers who assist in or facilitate the manufacturing process but do not directly work on the product.

Prime Costs

Direct materials and direct labor costs that are directly associated with the production of goods.

Factory Overhead Costs

Expenses related to operating a factory that cannot be directly traced to specific units produced, such as electricity, maintenance, and rent of the factory space.

Direct Labor Costs

Costs that are directly associated with the production of goods or services, typically wages paid to workers directly involved in manufacturing or production.