Suppose a Consumer Spends All Income on Goods X and Y

question 16

Multiple Choice

Suppose a consumer spends all income on goods X and Y. Suppose the price of good X decreases and the consumer's income decreases. Which of the following must be true?

• A) The amount of good Y that the consumer can purchase decreases.
• B) The amount of good X that the consumer can purchase decreases.
• C) Both A and B.
• D) None of the above.

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Definitions:

Full Disclosure Principle

A financial reporting guideline requiring companies to disclose all relevant and necessary information in their financial statements and footnotes to help users make well-informed decisions.

Financial Statements

Official documentation reflecting the monetary transactions and status of a company, individual, or different entity.

Accounting Equation

A fundamental principle of accounting that maintains that assets are always equal to the sum of liabilities plus equity (Assets = Liabilities + Equity).

Accounting Equation

The accounting equation represents the relationship between a company's assets, liabilities, and equity, illustrating that assets are funded by borrowing (liabilities) or investing (equity).