The Optimal Capital Budget Occurs at the Point Where Two

question 61

Multiple Choice

The optimal capital budget occurs at the point where two curves intersect.Which of the following is/are one of those curves?

• A)Only statement I is correct
• B)Only statement II is correct
• C)Both statements I and II are correct
• D)Neither statement I nor II is correct

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to substitute one good for another more or less expensive good.

Income Effect

The change in an individual's or an economy's consumption resulting from a change in real income.

Normal Good

A product whose demand increases as consumer income rises, indicating a direct relationship between income and demand for the good.

Income Effect

The change in an individual's or economy's consumption patterns resulting from a change in real income.