Suppose That for Emily, DVDs and Trips to the Movie

question 399

Multiple Choice

Suppose that for Emily, DVDs and trips to the movie theater are perfect substitutes. Currently, Emily is spending all of her income on trips to the movie theater. If the price of DVDs doubles, the substitution effect will

• A)be two times the income effect.
• B)be half the income effect.
• C)be zero.
• D)always increase the number of trips to the movie theater Emily makes.

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Definitions:

Business Auto

A vehicle owned by a company and used for business operations, which can include transportation of goods, services, or employees.

Adjusted Basis

The original cost of a property adjusted for factors such as depreciation or improvements, used in calculating capital gains or losses for tax purposes.

Wash Sale

A tax term referring to the sale of a security at a loss and the repurchase of the same, or substantially the same, security shortly before or after, which disallows the claim of the loss for tax purposes.

Substantially Identical

Refers to property or securities that are nearly the same, often used in tax rules concerning wash sales.