If a Consumer's Preferences for Two Goods, Say Food and Clothing

question 89

Multiple Choice

If a consumer's preferences for two goods, say food and clothing, are such that as income decreases, consumption of food increases but consumption of clothing decreases, we can say that:

• A)food and clothing are inferior goods.
• B)food is a normal good and clothing is an inferior good.
• C)food is an inferior good and clothing is a normal good.
• D)food and clothing are both normal goods.

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Definitions:

Default Risk

The risk that a borrower will not make the required payments on their debt obligations.

U.S. Treasury Bonds

Long-term government debt securities issued by the United States Department of the Treasury with maturity periods over 20 years, offering a fixed interest rate.

Coupon Rate

The coupon rate is the annual interest payment made to bondholders, expressed as a percentage of the bond's face value.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer; it is often a minimal amount like $0.01 or $1.00.