Bob Goes Out to Dinner Three Times Per Week, Usually

question 163

Multiple Choice

Bob goes out to dinner three times per week, usually either to the local steak house or a Chinese restaurant in town. If the steak house were to raise its prices, Bob would probably (1) be less inclined to eat at the steak house and more inclined to eat at the Chinese restaurant when he did go out and (2) eat out fewer times per week because at the higher prices he cannot afford to eat out as much.

• A) Part 1 is an example of the substitution effect, part 2 of the income effect.
• B) Part 1 is an example of the income effect, part 2 of the substitution effect.
• C) Part 1 is an example of the law of diminishing marginal utility, part 2 of the substitution effect.
• D) Part 1 is an example of the proportions hypothesis, part 2 of the income effect.

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Definitions:

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation, a creditor relationship with a governmental body or a corporation, or rights to ownership as represented by an option.

Discounted With Recourse

A financing arrangement where the seller is liable to the buyer for any debts or obligations not fulfilled, with the key aspect being the discount given on future receivables.

Customer Defaults

Occurs when a customer fails to fulfill their payment obligations for goods or services received.

Repay

To pay back or return money that was borrowed from an individual, institution, or entity.