Suppose a Consumer Can Choose to Consume Either Apples or Oranges.Which

question 11

Multiple Choice

Suppose a consumer can choose to consume either apples or oranges.Which of the following results when the price of each fruit increases by 15 percent?

• A)The consumer substitutes apples for oranges.
• B)The income effect of this price change is positive.
• C)The substitution effect of this price change is zero.
• D)The consumer demands more of both the goods.
• E)The consumer substitutes oranges for apples.

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Definitions:

Tax Rate

The share of earnings upon which a person or corporation is taxed.

Market Risk Premium

The Market Risk Premium refers to the extra yield an investor anticipates receiving for investing in a volatile market portfolio over risk-free securities.

Risk-Free Rate

The projected earnings rate on a risk-free investment, usually depicted by the interest on government bonds.

Company Beta

A measure of a company's stock volatility in comparison to the overall market volatility.