Suppose the Only Two Goods That Brett Consumes Are Wine

question 180

Multiple Choice

Suppose the only two goods that Brett consumes are wine and cheese.When wine sells for $10 a bottle and cheese sell for $10 a pound,he buys 6 bottles of wine and 4 pounds of cheese - spending his entire income of $100.One day the price of wine falls to $5 a bottle and the price of cheese increases to $20 a pound,while his income does not change.The bundle of wine and cheese that he purchased at the old prices now costs

• A) the same amount at the new prices.
• B) less than Brett's income at the new prices.
• C) more than Brett's income at the new prices.
• D) We do not have enough information to answer the question.

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Definitions:

Straight Line Basis

A method of calculating depreciation and amortization that allocates an equal portion of an asset's cost to each period in its useful life.

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life.

Payroll Accrual

The process of recording salaries and wages that have been earned by employees but not yet paid by the company.

Books Closed

A term referring to the point at which an accounting period is concluded and all financial statements are finalized.