Scenario 7-1 Use the Information Below to Answer the Following

question 162

Multiple Choice

Scenario 7-1 Use the information below to answer the following question(s) .
JoAnn considers cola and plain sparkling water to be good substitutes. Suppose the price of sugar, a key ingredient used to produce cola, falls.
Refer to Scenario 7-1. According to the income effect, which of the following is most likely to occur?

• A) JoAnn will purchase less cola and more sparkling water.
• B) JoAnn will purchase more cola and less sparkling water.
• C) JoAnn will purchase more of most goods due to her higher real income.
• D) JoAnn's demand curve will decrease (shift in), causing her to purchase less cola.

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Definitions:

Gross Profit

The difference between revenue and the cost of goods sold before accounting for certain other costs.

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term liquidity of a business.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the operating cycle of the business, whichever is longer.

Credit Policy

Guidelines that a company follows to determine credit terms for customers, aiming to balance sales and the risk of bad debts.